Investors should diversify in crypto projects that exhibit strength during a market correction

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Bitcoin and Crypto Market Watch Thursday, January 06, 2022 - 18:56

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Volatility is one of the most defining characteristics of cryptocurrency markets. But for the new market participants, for the investors or traders who have joined the bandwagon recently, volatility can be unsettling. Since last night, Bitcoin (BTC) has undergone a sharp correction by 7% to below $42,000 which has been the lowest for over a month now. In this article, we will perform a brief analysis on what caused BTC to pullback and its impact on the altcoin market.

This is not new for Bitcoin

Bitcoin has been the best performing asset for the decade because of its meteoric rise in its price. It rose from $1 in 2010 to $69,000 in 2021. Any asset with such strong price gains are likely to encounter extended volatile periods along the road and BTC is no exception. In fact, volatility is the key factor that allows early market participants to book good profits.

In 2021, BTC had two spells of 30%+ corrections in May and in November. But BTC has made a comeback post boh by first going into an accumulation phase (low volume) followed by a breakout phase (high volume) surpassing its previous all time highs.

Right when BTC was expected to bounce from the bottom of its month-long trading range, it further broke down to sub $43,000 level. This price action is speculated to have been caused by the US Federal Reserveā€™s remarks on getting the balance sheet in control and increasing interest rates in 2022. The wider financial markets including the Nasdaq and S&P 500 reacted strongly triggering a reaction in cryptocurrency markets too.

Ethereum falters

Ethereum (ETH), unable to exhibit strength against the wider market sentiments, succumbed to selling pressures and lost the crucial $3,500 level to the bears yesterday. ETH found strong support near the $3,330 level, however it is trading just above $3,300 due to high volatility. ETH will enjoy support from the $3,000 region if it further slips whereas to resume uptrend, it has to take down $3,500 first and $3,800 subsequently. Ethereum is currently 12% down over the last day and is likely to see more downside if BTC underperforms.

Altcoins bleed

With BTC and ETH under fire, the whole market has painted red with strong performers like Solana (SOL), Polygon (MATIC), Terra (LUNA) losing more than 11% from the previous day. While these liquidation events are unexpected and inevitable, there are ways to strengthen oneā€™s portfolio during those times. For example, some projects have performed well against BTC and ETH price dips today. The pullbacks for Stellar (XLM), Fantom (FTM) and Near Protocol (NEAR) have been moderate today (below 7%), due to strong moats like Total Value Locked (TVL), fund allocations etc, analysts expect a strong price bounce in such projects once an uptrend in BTC resumes.

So, investors will do well to spread their investments by strategically diversifying their portfolio within crypto and overall as well. And always remember that Bitcoin has trended up with time since its inception. Such dips are an ideal entry point for the savvy investor.

Disclaimer: This article was authored by Giottus Cryptocurrency Exchange as a part of a paid partnership with The News Minute. Crypto-asset or cryptocurrency investments are subject to market risks such as volatility and have no guaranteed returns. Please do your own research before investing and seek independent legal/financial advice if you are unsure about the investments.

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