Trading Precautions in FOMO Market Conditions

Recently, the cryptocurrency market has seen a rapid rise, attracting widespread attention from market participants. This article will explore several key observations and trading considerations under the current market conditions.

1. Rapid Rise Trend

Recently, the altcoin market has shown a rapid upward trend. This wave of increase began with large-cap coins like Chainlink and Solana, and then quickly spread to low-cap coins and meme coins. This type of diffusion from large-cap coins to small-cap coins usually occurs in the later stages of a bull market. Currently, the market seems to be in a state of eagerness to chase the rise, as if missing out now would mean losing the opportunity forever.

It is worth noting that some established coins like MBL and FIL have also joined the rising ranks. This situation is quite similar to the market conditions before the outbreak of the COVID-19 pandemic at the end of 2019 to the beginning of 2020. Looking back at history, that surge ultimately proved to be a bull trap. Will the current market trend repeat this, or is it merely a psychological shadow of the bear market affecting investors? This question deserves our contemplation.

2. Ethereum Performance is Lackluster

Compared to other cryptocurrencies, Ethereum's price performance has been disappointing. According to data from October 1 to November 14, 2023, Ethereum only increased by 18%, which is far lower than Bitcoin's 30% increase, not to mention Solana's 120% and Avalanche's 69% increases.

This underperformance may be related to Ethereum's staking mechanism. After the Shanghai upgrade, more ETH has been locked in staking. While this has stabilized the price of ETH to some extent, it has also limited its potential for short-term gains. Furthermore, when investors exchange ETH for other rising altcoins, it actually creates ongoing selling pressure on ETH.

It is worth noting that during the last bull market, the rise in the ETH/BTC ratio often marked the end of the bull market, as traders would transfer profits from other altcoins into relatively safe assets like ETH.

3. Solana Venture Capital Holdings

As the market warms up, some previously dormant venture capitalists are becoming active again. Notably, some of them have quickly begun to promote the assets they hold.

Solana is a typical venture capital coin, with a large portion of its token allocation flowing to internal investors. These venture capitalists naturally hope to see the price of SOL return to the high levels of several hundred dollars. Notably, according to the Solana Foundation, the SOL tokens held by FTX/Alameda will gradually unlock before 2028.

4. Pay Attention to Active Selling Behavior

In this round of price increase, various parties are taking the opportunity to sell assets, including project development teams, early participants, and some struggling exchanges. Although selling at the beginning of a bull market often proves to be a wrong decision, it may be a rational choice for certain projects that are in urgent need of funds.

Investors need to be vigilant about: 1) avoiding becoming the exit liquidity for others; 2) paying attention to whether the sell-off indicates that the project team has lost confidence in the project. Some once-famous projects, such as SandBox during the peak of the metaverse concept, have seen their development teams continuously selling tokens.

In addition, the unlocking of some tokens has also sparked controversy, such as in the case of dYdX. Investors need to closely monitor these developments.

5. Stablecoin Inflow Situation

Recent reports have indicated a significant influx of stablecoins into the market. According to data from DeFillama, approximately $3 billion in stablecoins can indeed be observed flowing in. However, compared to the outflow of funds the market experienced last year, this number still seems trivial.

This $3 billion increment is likely to come from existing cryptocurrency enthusiasts, specifically those who have been waiting on the sidelines to deploy their funds. To truly drive a long-term rise in the market, it is necessary to attract new capital flows from outside the crypto market. This is also the reason why people have high hopes for a spot Bitcoin ETF.

6. Pay attention to news related to Bitcoin ETFs

According to reports from media outlets such as CNBC, the Bitcoin ETF is expected to be approved in early 2024, but there may also be delays. It is worth noting that traditional asset management companies still recommend that clients allocate 1-5% of their overall investment portfolio to cryptocurrency investments, which means we should not expect a large influx from the traditional financial sector.

At the same time, financial advisors are also emphasizing the high volatility risks of Bitcoin. Therefore, we cannot expect traditional financial capital to rapidly enter the cryptocurrency market in large amounts.

Regarding the impact of ETFs on the market, it is generally believed that people will try to take profits before the ETF officially launches. The approval of the ETF could become a "sell the news" event, similar to the past performance of Dogecoin during Elon Musk's appearance on Saturday Night Live.

7. The market outlook remains unclear

There are differences within the crypto community regarding whether this round of growth can be sustained. The current market sentiment is similar to that of the first half of 2023, with investors becoming overly excited during the upswing and quickly falling into frustration during the pullbacks.

The mindset of "going all out before the atmosphere worsens" reflects the market participants' lack of confidence in the trend. Recently, the altcoin market experienced a significant fluctuation, liquidating a large number of long positions, indicating that market liquidity remains insufficient and there is short-term speculative behavior.

Another important indicator to pay attention to is the comparison between spot trading volume and futures trading volume. Currently, perpetual contract trading still dominates, which suggests that the market may experience severe surges and sell-offs.

An ideal bull market usually presents a gradual upward trend rather than large fluctuations. Long-term investors tend to increase their positions gradually and most of the time do not suffer losses as a result. However, each market cycle has its unique characteristics, and we need to maintain an open and cautious attitude.