Monday, June 13 was another black day for the crypto market. Liquidation of margin positions of users of crypto exchanges reached $1 billion per day, according to the CoinGlass service. In total, the positions of 268,000 traders were forcibly closed. The largest number of losses fell on transaction with Bitcoin (BTC) and Ethereum (ETH) – $400 million and $358 million, respectively, per day.
The price of Bitcoin fell to $23,500, the lowest since the end of 2020, while the price of Ethereum fell to $1,100 for the first time since January of 2021. The assets of funds and corporations, such as Microstrategy (MSTR) and Tesla (TSLA), have gone into the negative, and El Salvador, whose administration invested in Bitcoin at a price of $50,000, is already losing $46 million.
The decline will likely continue
The main driver of the fall is Fed policy. The central bank began to raise interest rates as part of the fight against record inflation in the United States. In recent months, market participants have begun to worry that a tight monetary policy will contribute to a serious slowdown in economic growth in the country.
However, recent labor market figures indicate that the recovery process is still ongoing. Less than 400,000 jobs were created in May, the weakest result since April of last year. However, the figure is still higher than pre-pandemic levels when the rate grew by about 150,000 per month. At the same time, inflation, according to forecasts, is hovering close to 6%. Thus, the Fed will continue to raise the rate according to plan by 50 basis points in June and July. Investors will likely prefer to stay away from risky assets under such conditions, which is why the full growth of the stock and cryptocurrency markets may not begin soon.
Switching to a more careful and realistic strategy
A bear market is a great time to analyze one’s investment strategy and losses. The reason for serious monetary losses in the market is excessive optimism. 99% of projects are not able to survive, while their tokens quickly become uninteresting to traders. Projects like EOS, DASH and NEO were in the top in terms of capitalization in 2017. However, despite the rapid growth of the market in 2021, the tokens of these projects have not been able to reach their previous peak values.
The problem is that numerous projects are trying to become analogues of something that already exists. It is worth remembering the loud slogans of the once-popular EOS project that it will become an Ethereum-killer. The reality is that the interest of the majority of users lies solely in making a profit, and not in actually using an innovative product. The developers are well aware of this fact, which results in the massive selloff of the coins of such projects to crypto sheep and hamsters. Therefore, investors need to first ask themselves the question, “Will the product really be used?” If this is yet another project on the basis of Ethereum smart contracts that promises to solve the problem of ice melting, privacy in social networks or low salaries, then investors are best advised to refrain from buying its tokens.
It is worth noting that even incredibly hyped projects like Shiba Inu can easily fall short of the next bull market, since they cannot boast of having business experience or real demand. Given that the presence of large funds among early investors is beneficial only at the time the tokens appear on the market, it is better to get rid of the coins after a price rally initiated by market makers. Even after prices drop by more than 50% from their peaks, primary investors continue to receive huge revenues simply by pouring their large stocks into the market. Even if the developers sincerely wanted to develop their product after the collapse of token prices, they face serious problems with financing their livelihoods. As a result, work stops in the hope of a new round of growth. But it may not come.
The recovery potential is higher for projects that have survived more than one bear market, and BTC and ETH are definitely the favorites here. However, any purchases made now should be gradual and only after a significant price drop.
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