Crypto is feeling the heat of the market. Here’s what you should do

Cryptocurrencies are being sucked into the broader market turmoil, but financial advisers are urging anxious investors not to panic.

Bitcoin briefly fell below $30,000 on Wednesday, its lowest level in nearly a year. Shares of Coinbase Global, one of the largest crypto exchanges, fell to a record low after warning of a slowdown in trading volume. Even coins pegged to the US dollar are feeling the heat, reigniting a debate over the value of algorithmic stablecoins.

The turmoil is a good time for investors to rebalance their portfolios and perhaps better understand which coins may or may not have long-term value, advisers say.

“Bear markets are usually the perfect time to accumulate coins that you have long-term belief in,” said Gritt Trakulhoon, senior crypto analyst at investing app Titan. “It’s a tough market, that’s for sure, but it’s a good time to strategize.”

Billionaire entrepreneur Mark Cuban tweeted on Monday that the crypto was in a similar situation to the dotcom bubble, when speculation sent stocks of several internet-centric companies soaring, eventually bottoming out.

While a bubble burst is not inevitable, investors should focus on tailoring their portfolios accordingly with a long-term strategy that considers a time horizon of at least three years, Trakulhoon said. .

Inflation hedge
Bitcoin fluctuated on Wednesday after U.S. inflation data showed strong increases in consumer prices continued last month. The coin fell 6.2% to $29,085, touching its lowest level since last June, before regaining ground. It has now lost more than half of its value since peaking in November.

The drop has once again raised doubts that Bitcoin functions as an inflation hedge, a feature often touted by the coin’s proponents, who argue that its fixed supply of 21 million units will hold up against the downside. devaluation. Instead, the cryptocurrency has largely trailed the Nasdaq 100 index of the largest tech stocks, which are notoriously sensitive to rising prices.

Matt Hougan, chief investment officer of Bitwise Asset Management, says Bitcoin is both a short-term risk asset and a long-term inflation hedge. Price declines make sense in risky markets because investors tend to discount assets whose value lies mostly in the future, Hougan said.

“Bitcoin is not fully mature, and investors who allocate to bitcoin are partly betting on a future outcome where it is widely accepted as a store of value like gold or evolves into other common use cases,” Hougan said.

crypto wallet
A volatile market is a good time for investors to convert alt-coins into less risky blue chip coins. Titan’s Trakulhoon said investors should stick to cryptocurrencies they believe have strong fundamentals and longevity.

“At this point, being slightly more focused on coins you have strong conviction is better than being diversified into altcoins you don’t really understand,” Trakulhoon said, adding that 90% of coins “won’t recover. “.

“They will simply die – but those who survive will thrive,” he said.

Crypto’s slide may get uglier. But any further declines are a good excuse for investors to rebalance their portfolios and ensure they are not overexposed to crypto. Based on each investor’s risk appetite, it should represent between 5 and 10 percent of your total portfolio, said Eliézer Ndinga, director of research at 21Shares & Amun, which offers exchange-traded crypto products.

Stable Coins
Algorithmic stablecoins are also tested. They are touted as a way to get through the chaos of crypto by bringing their value closer to the US dollar or another reserve asset.

However, the TerraUSD stablecoin plunged to 45 cents on Wednesday instead of trading at $1 as expected. Backers of the algorithmic stablecoin TerraUSD are trying to raise around $1.5 billion to shore up the token.

The episode is a good reminder for investors to rebalance their portfolios and ensure that any stablecoins they hold are fully collateralized like Tether’s USDT and Circle’s USDC, Ndinga said.

“It’s better to have exposure to fully collateralized stablecoins in the event of a bank run, at least investors are able to redeem real dollars that are healthy,” he said.

Market sentiment has affected all parts of the crypto markets, including non-fungible tokens. The average daily trading volume on OpenSea, the largest NFT marketplace, fell by more than 34% from January to May, according to crypto data tracking platform Dune Analytics. Active users on the platform have dropped by 51%.

This market turbulence is the first true bear market cycle for NFTs, making it more difficult to determine where prices are headed, said Zachary Friedman, chief strategy officer of Secure Digital Markets. For investors looking for NFT projects that are resilient and can prove they have strong fundamentals, this turbulence may be a good time to restructure your portfolio.

“In a bear market, you have more time to do your due diligence and assess the skill of a project compared to when things are flying and you’re driven by fear of missing out,” Friedman said.

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