Is the Bull Market Running out of Steam? Is it Time to Protect your Crypto Assets?
The last year has truly been a blessing for the crypto market. The promise of high returns, fear of mass inflation, as well as simple boredom during lockdowns has sent investors piling into cryptocurrencies. Almost every day has set some kind of a new record.
Unfortunately, there are good reasons to believe that the bull run may be nearing its end. Although Bitcoin has been reaching new heights, it has recently experienced difficulties holding above its support level. Some market experts now believe that we cannot rule out a risk of an imminent collapse in asset value followed by a years-long ‘crypto winter’ of stagnation. Such warnings of a ‘bubble burst’ are increasingly common and have been echoed by many prominent bankers, traders, and analysts. Even the bulls admit that it is not unreasonable to think that the market could drop 20–30% in an instant. We all would like to believe that things are different this time, but the history of cryptocurrencies is full of such volatile boom and bust cycles.
Cryptocurrencies (BTC in particular) are best seen as a gauge of risk-taking in the wider markets. They soar in times of plenty and crash when times are bad. That is because very few people actually use cryptocurrencies for their day-to-day payments or as a store of value. Although there have recently been a few high-profile announcements from companies pledging to start accepting payments in cryptocurrencies (think Tesla), such use-cases will not get anywhere close to the enormous sums that change hands for speculative purposes on any given day.
Additionally, for all the talk of cryptocurrencies as a hedge against inflation and broader movements in the market, BTC has correlated with equities to a degree that isn’t characteristic of an independent asset. The correlation between BTC and S&P 500 has held above 0.8 for almost the whole of the past year. That means that risks may transfer between the asset classes, and wide corrections will have enormous ripple effects.
Additional risks
Large financial companies may have, for now, come to the conclusion that Bitcoin can’t be ignored. But we should not forget that institutional money is squeamish — few should doubt that they will exit the market at the first sign of serious trouble. That is because, understanding the inherent scalability and payment problems that inhibit mass consumer adoption of cryptocurrencies, institutional investors are in it for the sole purpose of profit.
Experts also warn us that rising prices and the influx of unsophisticated traders will attract scrutiny from regulators, which continue to insist that cryptocurrencies are highly speculative and unfit as assets to store value. It is almost guaranteed that the rhetoric of ‘protecting the little guy from potential losses’ will open regulatory doors for far tighter regulations, potentially stifling the market and triggering massive losses.
All in all, the story here is that Bitcoin gains depend on adoption by disbelievers, of which we have fortunately had quite a few in the last year. Nevertheless, it should be clear that those who could have been convinced have already stuffed their wallets full. Those who haven’t yet, were they really interested, would have done so by now. The bull market will not last forever.
Investors who are serious about managing risk in this environment of uncertainty should consider hedging their crypto assets. To access straight-forward and cost-effective risk management instruments visit ProSwap.com
ProSwap enables traders to seamlessly create positions that replicate payoff structures similar to call and put options. Users can take both the short and long position but in a completely decentralised way. Not only does ProSwap enable risk-averse users to protect their downsides should they believe a drop in price is on the horizon, but also allows risk-seeking users to earn upfront premia for providing liquidity to those looking for protection against a drop in price.
ProSwap is the first to enable the seamless creation of decentralised structured financial instruments without the use of intermediary or voucher tokens. Most current DeFi derivatives providers typically involve unnecessary layers of rigidity and complexity, confusing for even seasoned veterans in finance, mathematics and computer science. ProSwap simplifies the process to the point where the average user can acquire the same level of protection as that enjoyed by a professional portfolio manager. It’s as easy to use as going on ProSwap.com, configuring the parameters of the position, and releasing it on to the market in the form of a smart contract.
ProSwap is built on top of the OpenHedge.com smart contract standard, which is supported by an independent, non-profit, open-source entity. This simple piece of infrastructure enables market participants to meet their strategic financial needs currently unmet by other providers. For a more technical description, visit OpenHedge.com.
Risk is Fun… in Moderation.
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