10X Research: Altcoin bear market, tough times for traders
Written by: 10X Research
Compiled by: Wenser, Odaily Planet Daily
Editor's Note: As one of the well-known research institutions that has been bullish on BTC, 10X Research recently published its latest views on the recent sharp decline in the market: "The selling pressure caused by the large-scale unlocking of altcoins is dragging down Bitcoin." Subsequently, 10X Research further elaborated on this view in the Newsletter. Odaily Planet Daily compiled the article for readers' reference.
cryptocurrencyA sharp drop saw altcoins suffer heavy losses
I’m sure the title of this article resonates with everyone who has traded altcoins in 2017 or 2021. We’ve analyzed 115cryptocurrency：从 2024 年的价格高点来看，这些加密货币平均已下跌 50% 左右。如下文所述，除非加密货币市场的流动性问题有所改善，否则这些损失将持续加重。
Bitcoin (down 11%) and Ethereum (down 13%) performed relatively well, likely benefiting from some traders converting altcoins into these two major currencies, a phenomenon that also occurred in the previous two market cycles.
10X Research: A look at some cryptocurrency price declines
The key to surviving the altcoin bear market lies in effective risk management.
A large amountTokenUnlocked and scarce cryptocurrency liquidity indicators are the main reasons for this altcoin crash.
On May 8, we warned the market that “over the next ten weeks, nearly $2 billionTokenUnlocking could cause the altcoin market to shrink further. "The main point of the article is that venture capital funds invested $13 billion in investment funds in the first quarter of 2022, 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 hotter investment area.
VC BlockchainInvestment scale in the field and Bitcoin price trend
Today, altcoins are in the midst of a brutal bear market. Just this year, 731 of these 115 cryptocurrencies reached new highs in March. We had been doing a good job predicting Bitcoin’s returns would outperform other cryptocurrencies, including Ethereum, but in early March, the market situation changed.
So, what unique changes happened in March?
March is a turning point, and liquidity shortages are beginning to emerge
In early March 2024, the Bitcoin price reached a potential target of $70,000 that we expect to reach by the end of the year.
Last year, we accurately predicted a target of $45,000 for Bitcoin by the end of 2023.
In October 2022, we also successfully predicted that Bitcoin would rise to around $63,000 before the halving in 2024. At that time, although we could have obtained a higher price target through quantitative analysis (such as Bitcoin price rising to $125,000), we did not make such an assertion because the market performance was affected by the reduction in liquidity in the cryptocurrency market.
We then gradually turned to a cautious approach and tried to buy a potential bullish breakout above $70,000, but set $68,300 as our “lowest” stop loss. After all, we are traders, not real gamblers.
When Bitcoin falls below $60,000, we lower our stop loss to $62,000 as a criterion for re-entering in case the short-term target of $55,000 is not achieved.
171 of 115 cryptocurrencies TP3T (left) reached a price high on March 14, and all are currently in a retracement state (right)
There is no doubt that we are at a critical juncture in this bull market.
Understanding and following risk management principles is what separates traders from those who end up holding on to altcoins and suffer losses, as altcoins tend to fall at the end of a bull run.
At the end of February 2024, Solana’s Meme coin craze broke out.
South Korea’s ruling People’s Power Party made several promises about the cryptocurrency industry (including the possibility of allowing a Bitcoin spot ETF) in the run-up to the April 10 national election, which caused the country’s cryptocurrency market daily trading volume to surge from $3 billion to $16 billion (twice the volume of the South Korean stock market). Shiba Inu became the most actively traded coin for several days.
But as time passed in March, the market performance was sluggish.
Changes in Bitcoin Funding Rates and Changes in Korean Cryptocurrency Trading Volumes
Behind holding on to the currency and waiting for it to rise, there may be a trap that gradually returns to zero
We occasionally dabble in altcoins, but primarily focus on quality, heavily traded altcoins.
We often use a moving average as a stop loss criterion because it is critical to manage downside risk.
The cryptocurrency market is extremely cyclical and a conventional investment strategy of buy and hold is unlikely to work in the medium to long term. Instead, analyzing cryptocurrency liquidity and the macro environment and using a trader's mindset (risk management) framework to protect capital so that you are well positioned when the market cycle is on the upswing is a more effective strategy.Xiaobai NavigationThat’s why our investment approach is generally tactical, and we can take a more proactive approach when market conditions improve.
On April 4, we introduced the “Bitcoin Self-Reinforcing Mechanism Framework”, which shows how Bitcoin ETF inflows fuel positive market sentiment, but at the same time, this liquidity is the result of increased arbitrage liquidity after retail speculative buying that drives up funding rates.
But now, that liquidity is close to drying up, as we can see that despite lower inflation data this month, Bitcoin ETFs have seen significant outflows (down $900 million in the past seven trading days).
As Bitcoin’s funding rate (and CME futures premium) approaches zero, we may see more liquidation before the next monthly settlement date, when open positionscontractWill be transferred to the next CME contractcycle (expiration date is June 28). Although many people now realize that the liquidity of Bitcoin spot ETF is mainly arbitrage liquidity funds (we estimate the ratio to be 30% -40%), they obviously no longer send positive market signals, and since the funding rate is close to zero, it is unlikely that these liquidity funds will flow back.
3 月时，由于市场开始担心更高的通胀数据，比特币 ETF 流入也处于停滞状态，大多数山寨币也是在那个时候达到了价格高点。稳定币铸造速度在比特币完成减半后不久就开始放缓，未能为山寨币提供额外的流动性。而之后 20 亿美元的各类代币解锁只是临门一脚。
With the significant increase in trading activity (especially meme coin-related transactions) in March and early April, many traders may have accumulated a lot of positions at poor price points. Altcoins rise and fall, back and forth, but Bitcoin will remain standing in the next bull market.
Like previous bull runs, many traders may hold on to altcoins to wait for gains, but smart traders will protect their assets by moving their positions to Bitcoin when liquidity slows.
The difference between retail investors and institutional traders is that institutional risk managers will eventually force institutional altcoin traders to close their positions and stop losses at the appropriate time; while retail investors are unwilling to bear obvious losses and will hold altcoins until they return to zero.
The article comes from the Internet:10X Research: Altcoin bear market, tough times for traders
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