Some thoughts post market crash:
Summary of Events:
- Many of the Altcoin crash showed how inflated many altcoin valuations are.
- Altcoins have extremely low intrinsic demand and valuations are mostly a game of MM inventory vs Organic demand
- LSD depeg from underlying reflected a key need to focus on redemptions to handle black swan events of cascading liquidity. The Intrinsic value of the underlying was not able to keep up w market flows.
- MM pulling liquidity to minimise losses resulted in a rapid cascading effect with CEXes unable to match onchain values.
- ADL protected the trading platforms but Delta Neutral Traders got rekt as Shorts were forcefully realised while longs were deeply underwater.
- Many traders on leverage were wiped even on lower leverages. Basically longs above 2x leverage had a good chance of liquidations.
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Key Takeaways:
- Altcoin liquidity will be thinner than before as MMs reassess their risk systems while gradually resuming MM activities
- LSDs will reassess redemption flows to optimise for black swan events and meet large redemption flows
- Platform ADL will be a key security consideration for all large traders and MMs.
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Personal Thoughts:
- Market is in limbo now if high volatilty expected on Tradfi Market Open.
- The first LSD that adapts to market needs and address redemption flow will be the winner in the long run.
- There is very low RR to take a directional position on Altcoins atm unless you are bullish on them in the long term.
- The market bounce post nuke was an indication of where demands lies in altcoins for traders - $MNT, $BNB, $ENA, $PUMP
- Holding and twapping in spot for major is likely more suitable than taking on any large leveraged position this week.
- Longing Gold > Longing BTC for portfolio hedging given the largest overhang for the market now is a trade war between US and China.
- $BTC will likely follow macro conditions but gold will likely emerge the strongest through this market volatility.
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Survive. Always hedge your portfolio and live to trade another day.
Peace.
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