Winning with stability: Crypto investors’ strategies in the face of volatility

Summary of the general direction: long-term bullish, short-term bearish

From a long-term perspective, we remain optimistic about the future of the Crypto market, as both the business cycle and liquidity cycle continue in a positive direction. However, in the short term, Crypto price volatility may intensify due to liquidity pullbacks.

Some people may ask: Since I am optimistic about the long-term outlook, why do I need to adjust my operations? This is because the Crypto market, as the market with the highest risk appetite in the world, is extremely volatile. In a bear market, even BTC may fall by as much as 80%. In order to improve the efficiency of capital use, I don’t want to let my funds be trapped for a long time, and I also hope to avoid unnecessary psychological training – this is particularly important for improving returns.

Please remember one thing: excessive volatility is the enemy of returns!

1. December: The most important month of the year

December will be the most important month for the Crypto market in 2024, and its operating results will determine how much profit we can keep in the market this year.

Through observation of global liquidity, we believe that the market may experience significant fluctuations in the future. In this case, protecting the profits already earned this year and avoiding profit taking have become the top priority at present.

2. The general direction of the Crypto market: risk preference and liquidity

The core drivers of the Crypto market can be attributed to two aspects: the risk appetite of funds and the abundance of global liquidity.

The level of risk appetite is usually determined by the business cycle. For example, when a companys EPS (earnings per share) rises, it means that the companys profitability has increased, and after making money, there will be more funds for investment, and market sentiment will become more optimistic, and even willing to expand business through borrowing, which will also drive liquidity back up.

Judging from the data, there is nothing wrong with the economic situation reflected by the current US PMI (Purchasing Managers Index), and the PMI leading indicators released by many economists also show that the economy will show an upward trend in the next 3-6 months.

In addition, the CPI (Consumer Price Index) data released last night showed that inflation is still in a mild downward channel, without any abnormalities. This means that the slowdown in the job market is more of a structural adjustment rather than a general weakness, and inflation does not pose additional pressure. This clears the way for future interest rate cuts and the use of other monetary policy tools. After the CPI data was released, both the US stock market and the Crypto market rose.

In the long run, there is generally no problem with global liquidity. The recent liquidity fluctuations are mainly due to concerns about the uncertainty of Trumps policies after he took office, as well as the recent strong performance of the US dollar. There is no need to over-interpret these issues.

3. Why worry about Crypto market volatility?

Despite the positive long-term trend, the Crypto market may still face greater volatility risks in the short term.

We can find some answers from the data provided by authoritative macroeconomic institutions: First, from Figure 1, we can see that the Global Liquidity Index is a leading indicator of Bitcoins 6-week rolling return rate. Data shows that the 6-week growth rate of GLI often predicts the short-term performance of BTC prices. By observing the liquidity trend, we can foresee that the decline in liquidity in the next 6 weeks may trigger an adjustment in BTC prices. Research data from another institution, Raoul, also shows that liquidity will continue to decline in the next 6-12 weeks. This decline may trigger further volatility in the Crypto market.

Based on the above data, we are cautious about the market conditions in the next 1 to 3 months.

4. How should we respond?

In view of the current market conditions, the following strategies need to be adopted:

First of all, the proportion of holdings of altcoins should be reduced. Because the volatility of altcoins is generally higher than that of BTC, and when BTC does not perform well, altcoins will usually perform worse or even experience a larger drop. Therefore, reducing the proportion of holdings of high-risk altcoins such as SUI, Banana, and SOL is a top priority.

The second is to reduce the leverage ratio. As the market may enter a period of large fluctuations, whether upward or downward, reducing the leverage ratio can effectively avoid the risk of liquidation and avoid unnecessary capital losses.

Finally, use options to protect profits. For most people who hold BTC, if conditions permit, they can use options tools to hedge current profits. This method can not only lock in some profits, but also reduce losses when the market falls back.

Conclusion: Steady operation and keep the results

In the Crypto market, volatility is the norm, but the ability to cope with volatility is the key to our success. December is the closing stage of the years investment, and its importance is self-evident. We need to find a balance between risk and return, protect this years profit, and accumulate strength for future opportunities.

I hope every investor can move forward steadily, overcome fluctuations, and embrace broader market opportunities!

This article is sourced from the internet: Winning with stability: Crypto investors’ strategies in the face of volatility

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