No mercy in the market

Markets pass judgment, and often relentlessly. When you have been in them for some time, you get used to this type of episodes that occur cyclically. Renewal, the influx of fresh air and new ideas is the engine of new impulses with renewed strength.

The deterioration of the cryptoasset market is not from two days ago, it comes from further away, although that does not mean that it can be predictable, perhaps on the contrary. The trader, despite discounting expectations in prices, can only work with reality, and the reality is that the movements of recent days are difficult to manage, but nevertheless, we must get up if we have been knocked down, and continue … because this is not over.

Reality bath

Once again, reality has prevailed. And this is none other than the one that tells us that we are in a market in full growth process, and that with greater proportion than in more mature markets, there are certain projects that will not survive in an exercise of pure economic Darwinism. 

We have come a long way since the 2017 crisis, and we have not tired of stating that the market structure is completely different and has evolved. This has caused, for example, that the correlation with traditional markets is higher for the simple fact that each time, both markets share more investors. But there is a more institutional investor profile that not only brings this higher correlation to the current scenario, but also adds some negative connotation, such as the fact of a more intensive or evident market manipulation.

Dominance: The specific weight of bitcoin

Let’s start our analysis by highlighting a data that is very important for analysts: the pso or dominance of bitcoin in the market, which we have seen how it reached in the middle of this crisis, the maximums since last October 2021.

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Right now, the specific weight of bitcoin accounts for almost 45% of the total. In other words, the bleeding is absolute and very important in the whole market, but it can be seen how investors are seeking refuge in what is the crypto-asset of reference. The data must be analyzed in context, and therefore, the fact that bitcoin has had higher dominance with another investor profile cannot be assimilated to the current situation.

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Although we are currently recovering from the strategic level of USD 30,000, the truth is that the technical aspect does not encourage much optimism. 

We must be very cautious in these situations and keep in mind the possibility that we are facing a false market turn.

We are seeing how the market has had a strong reaction that has allowed it to climb 3%, but this, in terms of the current volatility, is not of minor importance, as we can perfectly appreciate with our Crypto Oscillator.

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The current rebound has not even threatened for an instant the reference average of this indicator, which makes a move that could easily add 3% to the current one perfectly probable. Just at that point we could see a change of scenario. To see such a scenario we need buyers to appear, but a zone as low as this one will appear sooner or later.

Severe punishment for the entire DEFI ecosystem

The fall has been significant in the main assets, but it has been especially hard on assets belonging to the world of Decentralized Finance or DEFI due mainly to the contagion effect of what happened in Terra, and its token LUNA.

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The declines are widespread and we may see certain tokens at significant discounts in what some will surely qualify as a historic buying opportunity

LUNA Affair

If there is a victim in this whole process, it is Terra’s Blockchain, which has been mortally wounded. Although the impact is widespread throughout the ecosystem, as its main assets have lost 46% of their value in just 24h, the focus is on the network’s native token (LUNA), and its stablecoin UST.

We could debate for many hours about the causes or the origin, something that goes beyond market commentary, but what we can clearly see are the consequences.

The UST stable coin loses more than 80% of its value.

What has really destroyed the system is the attack suffered by the stable that leaves it in a situation that makes it impossible for us to see it recover parity again, exposing the weaknesses of the algorithmic stablecoins. 

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This has been the trigger that has also dragged down the native token, which now has a value of practically zero, making recovery more complicated.

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Portfolio diversification

This brings back to the fore one of the maximal rules of investing, which possibly many native crypto investors have not taken into account

ALWAYS diversify your portfolio of assets

This has to be the main rule we must follow, together with the fact that we must keep in mind that:

There is a direct relationship between the return offered by a product and the risk of the investment

We have learned the hard way (as it is always done), that security has a price. And diversification must be accompanied by a balancing of our positions within our portfolios with a significant weight of safer and more stable assets, even if this is detrimental to profitability.

Affecting the rest of the market

Yesterday traders were very active. These days are high volume days. There is a lot of capital turnover, which indicates a strong recomposition of portfolios. Among other episodes we could see a series of tensions in other stablecoins that have not come to a head and have normalized. 

An important nuance is that these stablecoins are not algorithmic. As we have commented, the concept of algorithmic stablecoin should be subjected to a thorough review.

We must follow a strategy of containment and wait with patience.

We are at a time when we must remain very calm, define our objectives well and act accordingly. If we have the perception of the high value and potential of the cryptoasset ecosystem, we can see interesting opportunities at a significant discount, but all of this has to be framed within an investment strategy

As final tips:

  • Define your medium-term goals.
  • Know the projects in which you invest as much as possible.
  • Related to the previous one, do not try to cover the whole market. Concentrate on the projects you think are important.
  • Combine this concentration of effort and knowledge with a necessary and minimum diversification in all possible areas (different blockchains, types of networks, sectors of activity…).

And naturally, if you want to cover the entire market, also diversify by investing in professional products that can cover the entire spectrum of available assets with sufficient guarantees.

That’s the role of BELOBABA….

DYOR

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