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Fundstrat says that investors should consider reining in their risk if they think that Cryptocurrencies are headed for more bouts of downside volatility.
Sean Farrell, head of digital-asset strategy at the financial research firm, wrote in a note on Thursday that buying put protection on long-crypto positions and cutting exposure to more speculative altcoins are a couple of safeguards.
Over the US Memorial Day holiday, leverage in the market is increasing, while Liquidity is low and could tighten further. He said that the macro outlook is unfavorable to risk assets as the Federal Reserve hikes interest rates.
Farrell said things could get weird during the holidays. The combination of low liquidity, increasing leverage and tightening monetary conditions could lead to large price swings, and potentially further volatility to the downside in the immediate term.
During the Memorial Day periods in 2020 and 2021, the volume of the market plummeted and activity is likely to be low again this year. Outsized price swings are possible with institutional trading largely absent on holidays.
As central banks tighten monetary conditions, some cryptocurrencies are off more than others. Another blow to investor confidence in the asset class was dealt this month by the collapse of the Terra ecosystem.
Fundstrat was optimistic about the long-term outlook for digital assets.
Farrell said that they remain constructive on the prices for 2022.
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