Editor’s Note: As one of the well-known research institutions that have been bullish on BTC, 10X Research recently expressed its latest viewpoint on the market’s recent sharp decline: “The massive unlocking of altcoins is dragging down Bitcoin.” Subsequently, 10X Research further elaborated on this viewpoint in its Newsletter.
Cryptocurrencies Experience Steep Decline, Altcoins Suffer Heavy Losses
The title of this article surely resonates with anyone who has traded altcoins in 2017 or 2021. We have conducted an in-depth analysis of 115 cryptocurrencies, and on average, these cryptocurrencies have fallen by around 50% from their price highs in 2024. As we will discuss below, unless there is an improvement in the liquidity of the cryptocurrency market, these losses will continue to worsen.
Bitcoin (with an 11% price decline) and Ethereum (with a 13% price decline) have performed relatively well, possibly benefiting from traders converting their altcoins into these two major currencies. This phenomenon has occurred in previous market cycles as well.
10X Research: Overview of the Price Decline of Some Cryptocurrencies
The key to surviving the bear market of altcoins lies in effective risk management.
The massive unlocking of tokens and the scarcity of liquidity indicators in the cryptocurrency market are the main reasons behind the collapse of altcoins.
On May 8th, we issued a warning to the market 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 more popular investment field.
VC Blockchain Investment Scale and Bitcoin Price Trend
Today, altcoins are in the midst of a brutal bear market. Yet earlier this year, 73% of these 115 cryptocurrencies reached new price highs in March. We have been consistently successful in predicting that Bitcoin would outperform other cryptocurrencies, including Ethereum. However, the market situation changed in early March.
So, what unique changes occurred in March?
March marked a turning point, with signs of liquidity shortage appearing.
In early March 2024, the price of Bitcoin reached a potential target of $70,000 that we expected to achieve at 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. Although we could have come up with higher price targets through quantitative analysis (such as Bitcoin rising to $125,000), we did not assert such predictions due to the decrease in liquidity in the cryptocurrency market, which affected market performance.
Subsequently, we gradually adopted a cautious approach and attempted to buy into the potential breakthrough above $70,000 for Bitcoin, with $68,300 as our “lowest” 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-entry, in case the short-term target of $55,000 for a bearish trend was not achieved.
17% (left) of the 115 cryptocurrencies reached their price highs on March 14th, and currently, all currencies are in a retracement state (right).
There is no doubt that we are at a critical moment in this bull market.
Understanding and adhering to risk management principles is what distinguishes traders from those who end up holding altcoins and suffering losses, as altcoins often fall when the bull market ends.
In late February 2024, the Meme coin frenzy of Solana erupted.
The ruling Minjoo Party in South Korea made several commitments regarding the cryptocurrency industry (including the possibility of allowing Bitcoin spot ETFs) ahead of the national elections on April 10th, leading to a surge in the daily trading volume of the South Korean cryptocurrency market from $3 billion to $16 billion (twice the trading volume of the South Korean stock market). Shiba Inu became the most actively traded coin in those few days.
But as time passed, the market performance faltered in March.
Bitcoin Funding Rate Changes and Changes in Korean Cryptocurrency Trading Volume
Behind the “holding for a rise” mentality may lie a gradually diminishing trap.
We occasionally dabble in altcoins but primarily focus on high-quality and high-volume altcoins.
We usually use dynamic moving averages as stop-loss criteria 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 assets in favorable positions during market cycles is more appropriate. That is why our investment approach is usually tactical, and we can adopt a more proactive strategy when the market environment improves.
On April 4th, we introduced the “Bitcoin Self-Reinforcing Mechanism Framework,” which showed how the inflow of Bitcoin ETFs contributes to positive market sentiment. However, these liquidity inflows resulted from speculative retail buying for arbitrage purposes. But now, this liquidity is nearing depletion. As we can see, despite the low inflation data this month, Bitcoin ETFs have seen significant outflows (decreasing by $900 million in the past seven trading days).
With Bitcoin’s funding rate (and CME futures premium) approaching zero, we may expect more liquidation activity before the next monthly settlement date, when open positions will transfer to the next CME contract cycle (expiring on June 28th). Although many are now aware that the liquidity of Bitcoin spot ETFs is mainly arbitrage liquidity funds (we estimate it to be around 30%-40%), they no longer convey positive market signals and 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 began 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 the significant increase in trading activity in March and early April (especially in meme coin-related trading), many traders may have accumulated positions at lower price points. The rise and fall of altcoins come and go, but Bitcoin will still stand tall in the next bull market.
Like in previous bull markets, many traders may insist on holding altcoins for a rise, but smart traders will protect their assets by transferring positions to Bitcoin when liquidity slows down.
The difference between retail and institutional traders lies in the fact that risk management managers in institutions will eventually force altcoin traders to close their positions at the right time, while retail traders are unwilling to bear obvious losses and will continue to hold altcoins until they become worthless.
