Editor’s Note: As one of the well-known research institutions that has been bullish on BTC, 10X Research recently published its latest viewpoint on the recent market downturn, stating that “the large unlocking of altcoins is dragging down Bitcoin.” Subsequently, 10X Research further elaborated on this viewpoint in their newsletter.
Cryptocurrencies experience significant declines, altcoins suffer heavy losses
The title of this article is likely to resonate with anyone who has traded altcoins in 2017 or 2021. We have conducted an in-depth analysis of 115 cryptocurrencies and found that, on average, these cryptocurrencies have dropped by around 50% from their peak prices in 2024. As explained below, unless there is an improvement in the liquidity of the cryptocurrency market, these losses will continue to intensify.
Bitcoin (with an 11% price drop) and Ethereum (with a 13% price drop) have performed relatively well, possibly benefiting from traders converting altcoins into these two major cryptocurrencies. This phenomenon has also occurred in previous market cycles.
10X Research: Overview of price declines of some cryptocurrencies
The key to surviving the bear market of altcoins lies in effective risk management.
The large unlocking of tokens and the scarcity of cryptocurrency liquidity indicators are the main reasons for the collapse of altcoins.
On May 8th, we issued a warning to the market, stating that “the unlocking of nearly $2 billion worth of tokens in the next ten weeks may further shrink the altcoin market.” The main point of this article was 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 the capital, as artificial intelligence has become a hotter investment field.
VC blockchain investment scale and Bitcoin price trend
Today, altcoins are in a brutal bear market. Just this year, 73% of these 115 cryptocurrencies reached their all-time high prices in March. We have consistently predicted that Bitcoin will outperform other cryptocurrencies, including Ethereum. However, the market situation changed in early March.
So, what unique changes happened in March?
March became a turning point, revealing signs of liquidity shortage
In early March 2024, the price of Bitcoin reached a potential target of $70,000, which we expected to achieve 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 halving in 2024. At that time, although we could have come up with higher price targets through quantitative analysis (such as Bitcoin reaching $125,000), the market performance was affected due to the decrease in cryptocurrency market liquidity, so we did not assert it.
Subsequently, we gradually became cautious and attempted to buy potential breakouts above $70,000 for Bitcoin but set $68,300 as our “lowest” stop-loss level. After all, we are traders, not true gamblers.
When Bitcoin fell below $60,000, we lowered the stop-loss price to $62,000 as a standard for re-entry, in case the short-term target of $55,000 was not achieved.
Price highs for 17% of the 115 cryptocurrencies (left) were reached on March 14th, and currently, all coins are in a retracement phase (right).
There is no doubt that we are at a crucial moment in this bull market.
Understanding and following risk management principles distinguish traders from those who ultimately hold altcoins and suffer losses because altcoins often decline at the end of a bull market.
In late February 2024, there was a craze for Solana’s Meme coins.
The ruling National Power Party in South Korea made several commitments regarding the cryptocurrency industry before the national election on April 10th, including the possibility of allowing Bitcoin spot ETFs. This led to a daily trading volume in South Korea’s cryptocurrency market increasing from $3 billion to $16 billion (twice the trading volume of the stock market). Shiba Inu became the most actively traded coin in those days.
But as time passed in March, the market performance dwindled.
Bitcoin funding rate changes and changes in South Korean cryptocurrency trading volume
Behind the “holding for gains” strategy may be a gradual trap towards zero
We occasionally dabble in altcoins but mainly focus on high-quality and 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 conventional investment strategies of buying and holding are unlikely to be effective 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 to be in a favorable position during an upward market cycle is more suitable. That’s why our investment approach is usually tactical, and we can adopt more proactive strategies when the market environment improves.
On April 4th, we introduced the “Bitcoin Self-Reinforcing Mechanism Framework,” which showed how inflows into Bitcoin ETFs boost positive market sentiment, but at the same time, these liquidity increases are the result of speculative retail buying for arbitrage.
But now, this liquidity is nearing exhaustion. As we can see, despite low inflation data this month, Bitcoin ETFs have seen significant outflows (decreasing by $900 million over the past seven trading days).
With Bitcoin’s funding rate (and CME futures premium) approaching zero, we may see more liquidation actions before the next monthly settlement date, when open positions will be transferred to the next CME contract cycle (expiring on June 28th). Although many people are now aware that the liquidity of Bitcoin spot ETFs is primarily arbitrage liquidity funds (we estimate the proportion to be 30%-40%), they no longer convey positive market signals, and these liquidity funds are unlikely to flow back due to the near-zero funding rates.
In March, as the market began to worry about higher inflation data, inflows into Bitcoin ETFs also stagnated, and most altcoins reached their price highs at that time. The minting speed of stablecoins started to slow down shortly after Bitcoin’s halving, failing to provide additional liquidity for altcoins. The unlocking of various tokens worth $2 billion was just the final blow.
With significant trading activity in March and early April (especially meme coin-related trades), many traders may have accumulated positions at lower price points. Altcoins rise and fall, but Bitcoin will still stand tall in the next bull market.
As in previous bull markets, many traders may insist on holding altcoins to wait for gains, 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 risk management managers in institutions will eventually force altcoin traders to close positions at the right time, while retail traders are unwilling to bear obvious losses and will continue to hold altcoins until they become worthless.
