Although the cryptocurrency market has already experienced a strong price correction over the past few weeks, experts believe that some caution is still needed before the investor goes in search of possible opportunities in the market. pool of souls.
The sharp decline in stablecoin prices, driven by the collapse of TerraUSD and Luna projectsplayed an important role in the adjustment undergone by the crypto universe more broadly.
Analysts and managers dedicated to the subject point out, however, that while the stablecoin-related event may have been a more specific case, factors that were already putting pressure on the cryptocurrency market and stocks are still present. in the script.
O rising interest rates by the Federal Reserve (Fed, central bank of the United States), and the reduction of the abundant liquidity that has energized the markets since mid-2020, is a process that has only just begun.
And, with inflation under pressure globally, accentuated by the new mobility restrictions in China and because of the war in Ukraine, not only is the US central bank expected to continue raising interest rates, but monetary authorities in other developed markets, such as Europe and Japan, are also expected to follow suit.
Amid pressure on multiple fronts, bitcoin year-to-date is down around 38%, while the cryptocurrency’s market capitalization has rebounded from a high above $2.5 trillion. dollars in mid-November last year, to currently trade around US$1.25 trillion.
In this scenario, even though they continue to see high growth potential for cryptocurrency technology and the blockchain network in the medium to long term, investment professionals have opted for a more cautious stance.
“While the luna event may be an isolated event, for the layman and even for the great mass of individuals who make up the cryptocurrency ecosystem, it has ignited a red flag,” says Bruno Hora, co-founder of the office of investment advisers.
He acknowledges that events like this distance do more than bring new investors into the segment.
“People who were starting to understand this market better, when they see what’s happened in the last few weeks, they end up creating resistance,” he says. Likewise, in times of strong recovery, interest and demand for related products tends to increase, he adds.
Before starting any type of investment in cryptocurrencies, explains Hora, it is necessary for the investor to be aware of the volatility he brings to the portfolio, respecting his risk profile so as not to regret it soon. time after.
“Perhaps the only free lunch there is for the investor is the ability to diversify their investments well and not be too exposed to a single asset,” says the co-founder of InvestSmart.
For investors who, aware of the risks, wish to make a capital allocation, Luiz Pedro Andrade, an analyst at Nord Research, recommends that periodic contributions be made and in volumes that do not compromise the budget. “Now is not the time to make big investments or sell anything.”
Additionally, given the inherent volatility of the business, the analyst says exposure to cryptocurrencies should ideally be limited to a space of no more than 5%, within a well-diversified portfolio with other asset classes, such as equities and fixed income. , either in Brazil or in investments abroad.
“While more cryptocurrency declines are expected with the Fed raising interest rates, from a long-term perspective, prices look attractive,” Andrade says.
Bitcoin Market Director Fabrício Tota said that in relative terms, luna trading has been one of the most dynamic within the platform in recent weeks, especially due to the increased interest in the subject. , which leads to a wave of new interested parties. evenings.
“There are only people who are selling because, on the other side, there is someone who is ready to buy, depending on the price,” Tota says, adding that he was not the least of the world surprised by the recent collapse of the luna.
“The cryptocurrency industry is still under construction, there will be projects that will work and others that will not prosper”, comments the director of the Bitcoin Market, who claims to have lost “a minute of sleep” in the face of the sharp fall of recent days. .
Focus on Bitcoin and Ethereum
According to Axel Blikstad, cryptocurrency fund manager at BLP Crypto, with the recent increase in volatility, the preferred option was to increase the portfolio’s concentration in the most consolidated cryptos, including bitcoin and ethereum.
“This is a tough year not only for cryptocurrencies, but for the market as a whole. We are going through a very big change, leaving an extremely low interest rate scenario,” says BLP partner, a manager with around R$230 million in cryptocurrency funds.
Chief investment officer at crypto manager QR Asset, Alexandre Ludolf also says he has opted for a more conservative approach to fund strategies, at least until there is more clarity on market prospects in the future. the coming months.
“The most important point for the correction in cryptocurrency prices is the potential reduction in the availability of capital”, explains the director of QR Asset, with around 470 million BRL of indexed strategies and active management of cryptocurrencies .
Ludolf says he has reserved more space in his portfolios to hold cash, such as short-term government bonds, to reduce portfolio volatility. And also with a greater focus on the more established cryptocurrencies bitcoin and ethereum.
For him, a regulatory breakthrough in the crypto market, and stablecoins in particular, is an important step to increase security and inject a new wave of optimism into the sector.
“Regulation of the crypto market is necessary for the evolution of the ecosystem to continue,” he pleads.
He claims that the fundraising pattern “has changed for the worse” at the manager with the increase in volatility in recent weeks, but that the greater knowledge of investors in general about cryptocurrencies has prevented a movement of massive takeovers.
“We were positively surprised by the strong stance of local investors, who understood that selling in times of greatest aversion is generally a bad strategy.”
Increase in correlations
Blikstad of BLP adds that with the increase in adoption of cryptocurrencies by large companies and global investors, the correlation between digital assets and more traditional market assets, such as stocks, has also increased.
It is for this reason, he says, that the movement of cryptocurrencies has followed more and more closely that of the major international exchanges, with the indiscriminate selling of riskier assets and the resulting downward pressure on technology companies, whether it’s stocks traded on the Nasdaq – the technology index is down about 27% on the year, whether it’s crypto assets.
“The trend is that over time, the correlation will increase further,” said the head of BLP.
Blikstad claims to have studied the luna-linked stablecoin TerraUSD soon after its launch, but did not invest in the project.
“Our assessment was that it was a company that was not going to stop holding up,” says the executive, who acknowledges that the losses generated for investors with the meltdown of stablecoins are increasing fear in the crypto market in general.
And that further highlights, he says, the importance of active management in the cryptocurrency space, to avoid early-stage projects that have yet to prove themselves.