Crypto Market Outlook: Risk-Off

Summary & Key Takeaways

  • Though we are seeing the makings of some favourable readings in many on-chain, derivatives, technical and sentiment indicators, the macro and liquidity environment moving forward remain a significant headwind for crypto assets. Rather than signaling at bottom, many of these metrics are perhaps confirming we are indeed in a bear market.

  • Investors should act accordingly; deploy capital in a conservative manner with a long-term timeframe, and understand that there may be significant downside ahead.

  • Any rallies from here will likely be sold as they will simply not be supported by the macro environment. Hedging further downside remains a wise strategy at present.

Risk-Off Grips the Crypto Landscape

When it comes to the world of cryptocurrency, the sparseness between risk-on versus risk-off is akin to making a small fortune versus total bankruptcy. It is the former that grabs the attention and lust of retail traders, whilst it is unfortunately the latter in which we are experiencing at present. Over the past few days we have seen approximately 265,770 cryptocurrency traders and investors be fully liquidated, with around $1.26b in capital destroyed. Unfortunately, with a speculative and high-beta asset, these are the ever present risks that come for the fore during a liquidity and growth cycle downturn.

The current drawdown in Bitcoin since its all-time high in November is now circa 70%. Again, this is to be expected of such asset class, and as we can see below, historically bear markets for BTC have seen prices fall anywhere from 70% to 90%. History would tell us there may be more pain ahead.

We are witnessing true capitalism at work within the crypto space at present. Layoffs (as seen by BlockFi cutting staff by 20% and Coinbase reducing its workforce by 18%, among others), the demise of LUNA and deteriorating VC investment are some such examples of the pain underway within the market. Though these developments ought to lead to a brighter future, things are likely to get worse before they get better (looking at your MicroStrategy). Creative destruction is perhaps capitalism at its finest.