Doc's Daily Commentary

Mind Of Mav

Navigating The Volatile Crypto Market

Plummeting prices. A wave of liquidations. Widespread panic.

Whether you’re a novice investor or an experienced trader, the market plummet of May 19th 2021 likely caused some fear. This was one of the fastest liquidation events ever recorded in crypto history.

Now, everybody is asking: “Was this the market top or just a bump in the road on the way to the moon?”

In this recap, we’ll analyze some of the reactions to the downturn.

DeFi Holds Up Strong

Whenever there is a strong directional move in the markets, it’s important to consider if the fundamental value proposition has changed. Looking at the on-chain metrics, we can conclude that DeFi protocols performed as expected.

DEX volumes soared during the volatility even as gas prices rocketed higher. Uniswap recorded an all time high of $6.3B in trading volume. Sushiswap had a similar uptick in trading volume, hitting $3B over the same time period.

While we don’t want to see drops like this often, there is no denying that high trading volume equates to higher income for exchanges and liquidity providers alike.

Liquidations within the lending markets prompted much of the trading volume as borrowers were forced to repay their loans. Aave alone recorded a total of 114 liquidations worth $28mm. While liquidations are never fun, the good news is that all of the top lending protocols functioned as intended and experienced no issues (unlike the last time this happened in March 2020).

The impact on lending and borrowing was as expected for these types of events. Both Aave and Maker’s borrowing declined by over $400mm, and Compound, according to their website, had a reduction of ~$1.5B. This accounts for 20% of borrowing volume. The lending side of the book was less affected, however: Compound declined -8% and Aave’s total liquidity dropped from $20B to $17.7B.

Overall, the total value locked in DeFi protocols declined from $78B to $59B. While this -25% decline is quite a large one-day move, it only brought us back to levels last seen at the end of April.

The Index Products

Let’s look at what happened to some index products.

In the recent panic, the Metaverse Index (MVI) went from $71 to $41, which is a decline of -42%. It has since recovered by +39% to $57 as of the time of this writing. The DeFi Pulse Index (DPI) declined from $601 to a low of $375, a pullback of -38%. However, it also quickly bounced back to $488, up +30% from the low.

In comparison, Bitcoin tumbled from $43k to as low as $30k (or even lower on some exchanges). That’s a -30% correction from the start of the selling, or -54% from the all-time high reached in April. The correction in Ether was just as severe, plummeting from over $3,400 to $1,800 within just a few hours, a -47% decline.

But among all of the volatility and chaos, one clear winner emerged: the leveraged product suite (FLI) from Index Coop.

This set of 2x products (ETH2x-FLI and BTC2x-FLI) provide leveraged exposure without the risk of liquidation, and this is exactly what happened. While other traders rushed to pay exorbitant gas costs to save their collateral, holders of the FLI products were able to rest assured that their funds would not be liquidated. According to CoinDesk, the recent crash triggered over 8 billion dollars in liquidations. At the same time, not a single holder of FLI products had to worry about any liquidations at all.

What Comes Next?

As the storm settles down and we reexamine our crypto portfolios, there are some important lessons to keep in mind:

Diversification is Key – Concentration in just a handful of assets puts you at risk during these types of events. Diversify broadly to help minimize portfolio volatility. 

Be Careful With Leverage – Cascading liquidations exacerbate these types of moves. While leverage can be a quick way to glory, it can also be your downfall. If you are going to use it, check out ETH2x-FLI and BTC2x-FLI for more information.

Be Ready to Act – Crypto is notoriously volatile. Be sure you are prepared for events like this by rebalancing your portfolio frequently to stay within your personal risk tolerance. It is easier to hodl or BTFD if you are comfortable with your position sizes.

 
 
 

The ReadySetCrypto "Three Token Pillars" Community Portfolio (V3)

 

Add your vote to the V3 Portfolio (Phase 3) by clicking here.

View V3 Portfolio (Phase 2) by clicking here.

View V3 Portfolio (Phase 1) by clicking here.

Read the V3 Portfolio guide by clicking here.

What is the goal of this portfolio?

The “Three Token Pillars” portfolio is democratically proportioned between the Three Pillars of the Token Economy & Interchain:

CryptoCurreny – Security Tokens (STO) – Decentralized Finance (DeFi)

With this portfolio, we will identify and take advantage of the opportunities within the Three
Pillars of ReadySetCrypto. We aim to Capitalise on the collective knowledge and experience of the RSC
community & build model portfolios containing the premier companies and projects
in the industry and manage risk allocation suitable for as many people as
possible.

The Second Phase of the RSC Community Portfolio V3 was to give us a general idea of the weightings people desire in each of the three pillars and also member’s risk tolerance. The Third Phase of the RSC Community Portfolio V3 has us closing in on a finalized portfolio allocation before we consolidated onto the highest quality projects.

Our Current Allocation As Of Phase Three:

Move Your Mouse Over Charts Below For More Information

The ReadySetCrypto "Top Ten Crypto" Community Portfolio (V4)

 

Add your vote to the V4 Portfolio by clicking here.

Read about building Crypto Portfolio Diversity by clicking here.

What is the goal of this portfolio? 

The “Top Ten Crypto” portfolio is a democratically proportioned portfolio balanced based on votes from members of the RSC community as to what they believe are the top 10 projects by potential.
 
This portfolio should be much more useful given the ever-changing market dynamics. In short, you rank the projects you believe deserve a spot in the top 10. It should represent a portfolio and rank that you believe will stand the test of time. Once we have a good cross-section, we can study and make an assessment as to where we see value and perhaps where some diamonds in the rough opportunities exist. In a perfect world, we will end up with a Pareto-style distribution that describes the largest value capture in the market.
 
To give an update on the position, each one listed in low to high relative risk:
 
SoV/money == BTC, DCR
Platforms == ETH, XTZ
Private Money == XMR / ZEC / ZEN
DeFi == MKR / SNX and stablecoins
 
It is the most realistic way for us to distill the entirety of what we have learned (and that includes the RSC community opinion). We have an array of articles that have gradually picked off one by one different projects, some of which end up being many thousands of words to come to this conclusion. It is not capitulation because we all remain in the market. It is simply a consolidation of quality. We seek the cream of the crop as the milk turns sour on aggregate.

Current Top 10 Rankings:

 

 

Move Your Mouse Over Charts Below For More Information

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