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Editor’s note: As one of the well-known research institutions that have continued to be bullish on BTC, 10X Research recently once again expressed its latest view on the market that has fallen sharply recently: “The selling pressure brought about by the large unlocking of altcoins is dragging down Bitcoin.” Subsequently,10X Research further elaborates on this view in Newsletter.
Cryptocurrency fell sharply, altcoins suffered heavy losses
It is believed that the title of this article resonates with everyone who traded altcoins in 2017 or 2021.We have an in-depth analysis of 115 cryptocurrencies: From the price highs in 2024, these cryptocurrencies have fallen by about 50% on average.As mentioned below, these losses will continue to aggravate unless liquidity issues in the cryptocurrency market improve.
Bitcoin (price drops by 11%) and Ethereum (price drops by 13%) performed relatively well, which may benefit from some traders converting altcoins into these two major currencies, a phenomenon that was in the first two market cycles.It has also happened in the middle.
10X Research: A list of the price declines of some cryptocurrencies
The key to surviving the altcoin bear market is effective risk management.
A large number of token unlocking and scarce cryptocurrency liquidity indicators are the main reasons for this altcoin crash.
On May 8, we warned the market, “In the next ten weeks, nearly $2 billion in token unlocking may lead to further shrinkage of the altcoin market.” The main point of this article is that venture capital funds are in 2022US$13 billion in investment funds were invested in the first quarter of 2019, but the market then turned into a sluggish bear market.Now, these funds are facing pressure from investors to return funds, because artificial intelligence has become a more popular investment field at the moment.
VC investment scale and Bitcoin price trend in the blockchain field
Today, altcoins are in a brutal bear market.And just this year, 73% of the 115 cryptocurrencies hit new highs in March.We have been doing a good job of predicting Bitcoin returns outperforming other cryptocurrencies including Ethereum, but in early March, the market situation changed.
So, what unique changes happened in March?
March is the turning point, and the lack of liquidity is beginning to emerge
In early March 2024, the Bitcoin price reached its potential target of $70,000 that we expected to achieve by the end of the year.
Last year, we accurately predicted the Bitcoin $45,000 target by the end of 2023.
In October 2022, we also successfully predicted that Bitcoin will rise to around $63,000 before the halving in 2024.At that time, although we could have quantitatively analyzed the higher price targets (such as Bitcoin price rising to $125,000), the market performance was affected due to the decrease in liquidity in the cryptocurrency market, so we did not assert that way..
We then gradually turned to caution and tried to buy a bullish potential breakout above Bitcoin $70,000, but used $68,300 as our “lowest” stop loss price.After all, we are Traders, not real gamblers.
When Bitcoin falls below $60,000, we lower the stop loss price to $62,000 as a standard for rebuy in case the short-term target of bearishness to $55,000 fails to achieve.
17% of the 115 cryptocurrencies (left) reached a price high on March 14, and all currencies are currently in a retracement state (right)
There is no doubt that we are at a critical moment in this bull market.
Only by understanding and following risk management principles can traders be distinguished from those who end up holding altcoins, which tend to fall at the end of a bull market.
At the end of February 2024, Solana’s Meme coin craze broke out.
South Korea’s ruling National Power Party made several commitments around the cryptocurrency industry (including potentially allowing bitcoin spot ETFs) on the eve of the national election on April 10, resulting in the daily trading volume of South Korea’s cryptocurrency market from 30$16 billion surged to $16 billion (equivalent to twice the trading volume of the South Korean stock market).Shiba Inu became the most active currency for trading in a few days at that time.
But as time passed, the market performance was in a slump.
Changes in Bitcoin funding rates and changes in Korean cryptocurrency trading volume
Behind the holding of the currency and waiting for the rise, there may be a trap of gradually returning to zero
We occasionally get involved in altcoins, but mainly focus on high-quality, large-volume altcoins.
We usually use dynamic averages as a stop loss standard because it is crucial to manage downside risks well.
The cryptocurrency market is extremely cyclical, and conventional investment strategies that buy and hold are unlikely to work in the medium and long term.Instead, it is more appropriate to analyze cryptocurrency liquidity and macro environment and use a trader’s mind (risk management) framework to protect funds in order to be in a good position when the market cycle is in an upward momentum.This is why our investment approach is usually tactical and when the market environment improves, we can take more proactive strategies to operate.
On April 4, we introduced the “Bitcoin Self-reinforcement Mechanism Framework”, which shows how Bitcoin ETF inflows can boost positive market sentiment, but at the same time, these liquidities are speculation by retail investors that drive higher capital rates.The result of increased arbitrage liquidity after buying.
But now, these liquidities are close to exhaustion.Because we can see that despite the low inflation data this month, Bitcoin ETFs still saw a big outflow ($900 million decline in the past seven trading days).
As Bitcoin’s funding rate (and CME futures premium) approaches zero, we may see more closing behavior by the next monthly settlement day, when open positions will be transferred to the next CME contract cycle (expired)The day is June 28).Although many people have now realized that the liquidity of Bitcoin spot ETFs is mainly arbitrage liquidity funds (we estimate the proportion is 30%-40%), they obviously no longer convey positive market signals, and because the capital rate is close to that ofzero, so these liquid funds are unlikely to be able to reflow.
In March, Bitcoin ETF inflows were also stagnant as markets began to worry about higher inflation data, and most altcoins also reached price highs at that time.The speed of stablecoin minting began to slow down shortly after Bitcoin completed its halving, failing to provide additional liquidity for altcoins.And then, the unlocking of various tokens of US$2 billion was just a lasting kick.
With the significant increase in trading activity in March and early April, especially in Meme-related transactions, many traders may have accumulated a lot of positions at poor price points.Altcoins are rising and falling, back and forth, but Bitcoin will remain strong in the next bull market.
Like the previous bull market, many traders may insist on holding altcoins to wait for the rise, but smart traders will protect their assets by shifting their positions to Bitcoin when liquidity slows down.
The difference between retail investors and institutional traders is that the risk management manager in the institution will eventually force the institution’s altcoin traders to close their positions and stop losses at the right time; while retail investors are unwilling to bear obvious losses and will always hold them.Altcoins until they return to zero.
