Analysts urge caution before investors go in search of bargains on cryptocurrencies

​Although the cryptocurrency market has already experienced a strong price correction during the last few weeks, experts believe that some measure of caution is still necessary before the investor leaves in search of possible opportunities in the basin of souls.

The sharp drop in stablecoin prices, driven by the collapse of the TerraUSD and luna projects, played an important role in the adjustment suffered by the crypto universe more broadly.

Analysts and managers dedicated to the topic point out, however, that, although the event related to stablecoins may have been a more specific case, factors that were already putting pressure on both the cryptocurrency market and stocks are still present in the scenario.

The interest rate hike by the Federal Reserve (Fed, central bank of the United States), and the drying up of the abundant liquidity that has boosted markets since mid-2020, is a process that is still just beginning.

And, with inflation under pressure on a global scale, accentuated by new mobility restrictions in China and the War in Ukraine, not only the US central bank must continue with the escalation of interest rate hikes, as monetary authorities in other developed markets, such as Europe and Japan, should also follow the same path.

Amid pressure from a number of fronts, year-to-date bitcoin is down around 38%, while the cryptocurrency market capitalization bounced back from a peak above $2.5 trillion in mid-November. last year, to currently trade around US$ 1.25 trillion.

In this scenario, as much as they continue to see high growth potential for cryptocurrency technology and the blockchain network in the medium and long term, investment professionals have opted for a more cautious stance.

allocation limit

“Although the Luna event may be an isolated event, for the layman and even for the great mass of individuals that make up the cryptocurrency ecosystem, it lit a warning signal”, says Bruno Hora, co-founder of the investment advisors office. InvestSmart

He recognizes that events like this distance more than bring new investors to the segment.

“People who were starting to understand this market better, when they see what has happened in the last few weeks, they end up creating resistance”, he says. Likewise, in times of strong upturn, interest and demand for related products tend to grow, she adds.

Before starting any type of investment in cryptocurrencies, says Hora, it is necessary for the investor to be aware of the volatility they bring into the portfolio, respecting their risk profile so that they do not regret it shortly afterwards.

“Perhaps the only free lunch there is for the investor is the opportunity to diversify investments well and not be overly exposed to a single asset”, says the co-founder of InvestSmart.

For those investors who, aware of the risks, are interested in making some 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. “This is not the time to make large investments or sell anything.”

In addition, given the inherent volatility of the business, the analyst says that 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 income. fixed, either in Brazil or in investments abroad.

“Despite expecting further cryptocurrency declines with the Fed rising interest rates, from a long-term perspective, prices look attractive,” says Andrade.

Director of the Bitcoin Market, Fabrício Tota says that, in relative terms, luna trading was one of the fastest growing within the platform in recent weeks, not least because of the increased interest in the topic, which brings in tow a wave of new interested parties.

“There are only people selling because, on the other side, there is someone willing to buy, depending on the price”, says Tota, adding that he was not the least bit 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 not lost “a minute of sleep” in the face of the sharp fall of the last few days. .

Focus on Bitcoin and Ethereum

According to Axel Blikstad, manager of cryptocurrency funds at BLP Crypto, with the recent increase in volatility, the option adopted was to increase the concentration of the portfolio in the most consolidated cryptos, especially bitcoin and ethereum.

“It’s a difficult year not only for cryptocurrencies, but for the market as a whole. We are going through a very big change, leaving a scenario of extremely low interest rates”, says the partner at BLP, a manager with about R$ 230 million in cryptocurrency funds.

Director of investment at crypto manager QR Asset, Alexandre Ludolf also says he has opted for a more conservative approach to fund strategies, at least until it is possible to have greater clarity on the outlook for the markets in the coming months.

“The most important point for the correction of cryptocurrency prices is the potential reduction in capital availability”, says the director of QR Asset, with about BRL 470 million in indexed strategies and active management in cryptocurrencies.

Ludolf says he has reserved more space in his portfolios to hold cash, such as short-term government bonds, in order to reduce the portfolio’s volatility. And also with a greater focus on the more established cryptocurrencies bitcoin and ethereum.

For him, a regulatory advance on the crypto market, and on stablecoins in particular, is an important step to increase security and drive a new wave of optimism in the sector.

“Regulation of the crypto market is necessary for the evolution of the ecosystem to continue”, he argues.

He says 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 redemptions.

“We were positively surprised by the firm stance of local investors, who understood that selling in times of greater aversion is usually a bad strategy.”

Increase in correlations

BLP’s Blikstad adds that with the rise in cryptocurrency adoption 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 cryptocurrency movement has increasingly closely followed that of the major international stock exchanges, with the indiscriminate sale of riskier assets and the consequent downward pressure on technology businesses, whether stocks traded on the Nasdaq —the technology index is down about 27% on the year—, whether crypto assets.

“The trend is that, over time, the correlation will increase even more”, says the BLP manager.

Blikstad claims that he studied the TerraUSD stablecoin linked to the luna shortly after its launch, but that he did not invest in the project.

“Our assessment was that it was a business that was not going to stop standing”, says the manager, who recognizes that the losses generated to investors with the melting of stablecoins increases the fear about the crypto market in general.

And it further highlights, according to him, the importance of active management in the cryptocurrency universe, in order to avoid early-stage projects that still need to prove themselves.