A Fundstrat executive shares 2 crypto investment strategies to help your portfolio during market turmoil. It also proposes to allocate more of the portfolios to Bitcoin (BTC) during this market cycle. However, he explains how Ethereum ‘Merge’ will affect the broader market.
Investors are timid about speculative assets
As you follow on Kriptokoin.com, the crypto markets have experienced a steep downtrend in the last few months. The industry’s overall market cap has lost more than two-thirds from its all-time high. Price action isn’t the only indicator of market health. But most of the time, the tokens lost value. Ethereum is down 62.28% in the last three months, while Bitcoin is down 48.96%. Meanwhile, both posted gains last week and were up more than 13%.
The Federal Reserve’s hawkish monetary policy and inflation concerns have left investors timid about speculative assets. Meanwhile, major central crypto lender Celsius has frozen user withdrawals and transfers. This combines with other contagion concerns stemming from the collapse of leading crypto hedge fund Three Arrows Capital. Investors are now assessing the emerging space’s systemic risks as the biggest names in industry experience
Sean Farrell: Reduce your altcoin risk
In a note to clients this month, Fundstrat Global Advisors comments:
Bitcoin is threatened by Fed tightening in the first half of the year. Tightening combined with unprecedented levels of inflation made it a tough first half for most assets. Bitcoin, crypto, risk assets, bonds and the 60/40 portfolio hit proverbial faces in the first half.
Sean Farrell, Fundstrat’s Vice President of Digital Asset Strategy, advises investors to mitigate altcoin risk. Some of the biggest hits from the market shakeup have affected altcoins. Solana, a popular Tier-1 blockchain used to print and purchase intangible tokens, has dropped 65.5% in the last three months. Polygon, a tier-2 project, lost 59.84% in the same time frame.
Fundstrat proposes allocating more Bitcoin (BTC) in portfolios
Greg King, founder of the $130 million crypto asset manager Osprey Funds, previously compared the performance of altcoins like Solana and Avalanche to publicly traded tech companies. Solana, for example, has experienced a series of network outages in recent months, which has resulted in a drop in the token price. According to King’s prediction, altcoins will perform similarly to tech stocks on a ‘mid-long term’ basis. “These are software companies and projects that are organized differently,” King said earlier.
Investors may want to consider dedicating more of their portfolio to Bitcoin (BTC) during this market cycle, Fundstrat notes. “Importantly, we think it is time for medium and long-term investors (1+ years) to consider allocating more aggressively to Bitcoin,” Farrell says. Although there are losses overall, Bitcoin performs slightly better than Ethereum and other altcoins in the bear market.
Let’s leave Bitcoin (BTC) and look at Ethereum ‘The Merge’
As investors evaluate portfolio allocations and future investment strategies, some focus on Ethereum Merge’s performance. Formerly called ETH 2.0, Ethereum Merge consists of a series of highly anticipated upgrades to transform the blockchain from a Proof of Work (PoW) to a Proof-of-Stake (PoS) consensus mechanism. It is possible that this will make it cheaper to use and enable faster processing.
Ethereum powers much of decentralized finance. Therefore, potential solutions to widespread complaints about its network are likely to lead to both greater adoption for its ecosystem and a greater influx of investors into the space. On July 6, one of the upgrade’s test-nets called Sepolia switched to PoS. These test-nets are essentially ‘dress rehearsals’ for The Merge, according to the note. Most developers in the industry see this effort as a success. However, it’s not enough to dodge other bearish market signals, according to Sean Farrell. Farrell explains his views as follows:
Despite this seemingly bullish news, we don’t think there is enough tailwind in mainstream consciousness behind this narrative at this time to beat any macro trend. There also seems to be less willingness to participate in the Ethereum economy, as the underlying wallet and transaction-related activity metrics show. Transaction rate, active addresses and new addresses have only dropped since the beginning of this year. Except for a couple of short-lived spikes around the UST relaxation and 3AC meltdown.
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