Source:
10XResearch
Compiled by: Odaily Planet Daily Wenser
Editor’s note: As one of the well-known research institutions that have been bullish on BTC, 10X Research recently issued a new statement on the recent market crash, stating that “the large-scale unlocking of altcoins is dragging down Bitcoin.” Subsequently, 10X Research further elaborated on this point in the newsletter, which has been translated by Odaily Planet Daily for readers’ reference.
Cryptocurrencies have fallen sharply, with altcoins suffering heavy losses
The title of this article is likely to resonate with anyone who has traded altcoins in 2017 or 2021. We have analyzed 115 cryptocurrencies in-depth, and from their peak prices in 2024, these cryptocurrencies have declined by an average of about 50%. As described below, unless the liquidity issues in the cryptocurrency market improve, these losses will continue to worsen.
Bitcoin (with a price drop of 11%) and Ethereum (with a price drop of 13%) have performed relatively well, possibly benefiting from some traders swapping altcoins for these two major currencies, a phenomenon that has occurred in the previous two market cycles.
10X Research: An overview of the price declines of some cryptocurrencies
The key to surviving the bear market in altcoins lies in effective risk management.
The large unlocking of tokens and scarce liquidity indicators in the cryptocurrency market are the main reasons for the collapse of altcoins this time.
On May 8th, we issued a warning to the market that “the unlocking of nearly $2 billion in tokens over the next ten weeks could further shrink the altcoin market.” The main point of this article is that venture capital funds invested $13 billion in the first quarter of 2022, but the market subsequently entered a sluggish bear market. Now, these funds are facing pressure from investors to return capital, as artificial intelligence has become the more popular investment field at present.
The scale of VC investment in the blockchain field and the trend of Bitcoin prices
Today, altcoins are in a brutal bear market. Earlier this year, 73% of the 115 cryptocurrencies reached new highs in March. We have been successful in predicting that Bitcoin’s returns would outperform other cryptocurrencies, including Ethereum, but the market situation changed in early March.
So, what unique changes occurred in March?
March was a turning point, hinting at liquidity issues
In early March 2024, the price of Bitcoin reached a potential target of $70,000, which we had expected to achieve by the end of the year. Last year, we accurately predicted a year-end target of $45,000 for Bitcoin in 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 reached higher price targets through quantitative analysis (such as Bitcoin rising to $125,000), the market performance was affected due to the reduced liquidity in the cryptocurrency market, so we did not assert it. Subsequently, we gradually turned cautious and attempted to buy potential breakouts above $70,000 for Bitcoin, but set $68,300 as our “minimum” stop-loss level. After all, we are traders, not true gamblers. When Bitcoin fell below $60,000, we lowered our stop-loss price to $62,000 as a standard for re-entering, in case the short-term target of $55,000 was not met.
17% of the 115 cryptocurrencies (left) reached their price highs on March 14th, and all currencies are currently in a retracement (right).
There is no doubt that we are at a crucial moment in this bull market.
Understanding and following risk management principles is what sets traders apart from those who ultimately hold altcoins and suffer losses, as altcoins tend to fall at the end of a bull market.
At the end of February 2024, the Meme coin frenzy of Solana erupted. Ahead of the national assembly elections in South Korea on April 10, the ruling Minjoo Party made several promises regarding the cryptocurrency industry (including the possible approval of Bitcoin spot ETF), leading to a surge in daily trading volume in the South Korean cryptocurrency market from $30 billion to $160 billion (twice the trading volume of the South Korean stock market). Shiba Inu became the most actively traded currency for several days at that time. However, as March came to a close, the market performance faltered.
Changes in Bitcoin funding rates and cryptocurrency trading volume in South Korea
Behind the hold-and-rise strategy lies the trap of gradual decline
We occasionally dabble in altcoins, but mainly focus on high-quality, high-volume altcoins. We usually use dynamic moving averages as stop-loss indicators because managing downside risk is crucial. The cryptocurrency market is highly cyclical, and the buy-and-hold conventional investment strategy is unlikely to work over 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 we are well-positioned when the market cycle is bullish, is a more suitable strategy. This is why our investment approach is usually tactical, and when the market environment improves, we can take a more proactive approach to operations. On April 4th, we introduced the “Bitcoin self-reinforcement mechanism framework”, which shows how Bitcoin ETF inflows boost positive market sentiment, but at the same time, this liquidity is the result of increased arbitrage liquidity from speculative retail buying. However, this liquidity is now close to drying up. We can see that despite lower inflation data this month, Bitcoin ETF outflows have experienced a significant decrease (a decrease of $9 billion over the past seven trading days). With Bitcoin’s funding rates (and CME futures premiums) nearing zero, we may see more liquidation action ahead of the next monthly settlement date, at which time the open positions will be transferred to the next CME contract cycle (expiring on June 28). Although many people are now aware that the liquidity of Bitcoin spot ETFs is mainly arbitrage liquidity funds (we estimate the proportion to be 30%-40%), they are clearly no longer transmitting positive market signals, and because the funding rate is close to zero, this liquidity is also unlikely to flow back. In March, as the market began to worry about higher inflation data, Bitcoin ETF inflows also stagnated, and most altcoins reached their price highs at that time. The stable coin minting rate began to slow down shortly after Bitcoin’s halving, failing to provide additional liquidity for altcoins. The subsequent unlocking of various tokens totaling $20 billion was just the tipping point. With the significant increase in trading activity in March and early April (especially the trading related to Meme coins), many traders may have accumulated positions at lower price points. The ebb and flow of altcoins, but Bitcoin will still stand tall in the next bull market. Like in previous bull markets, many traders may persist in holding altcoins in a hold-and-rise strategy, but smart traders will protect their assets by transferring positions to Bitcoin when liquidity slows down. The difference between retail and institutional traders is that the risk management managers in institutions will eventually force the institution’s altcoin traders to close positions at the right time; whereas retail traders are unwilling to bear obvious losses and will continue to hold altcoins until they are worthless.
