According to Fundstrat, the cryptocurrency market should get ready for even more volatility and downside movements, which is why investors should rethink their portfolios and hedge against the potential drop of the market.
Fundstrat's Sean Farrell recommended that investors buy put options on the long positions they have in their portfolios and cut exposure to the speculative altcoin. His view on the market is tied to the abnormally low liquidity and the potential spike of it on the Memorial Day holiday.
It is also important to note that the market is not deleveraging, and open interest on derivatives is currently growing. The macroeconomic conditions are also not in favor of risky assets like cryptocurrencies during rate hike cycles.
Farrell expects things to "get weird" during the upcoming holidays as the market faces low liquidity, increasing leverage and tightening monetary conditions, which is the perfect recipe for a hefty price swing.
Statistically, the Memorial Day holiday is followed by low liquidity and nonexistent volume on the market. As the market becomes more leveraged, we might see a condition in which the market faces a spike in volatility because of the lack of liquidity.
Back in 2020 and 2021, cryptocurrency market volume dropped by 43% and 35%, respectively, suggesting that this year's market activity will also stay at an extremely low level—considering the number of institutional investors that have entered the digital assets industry.
In anticipation of Memorial Day, the cryptocurrency market remains heavily suppressed under selling pressure incoming from long-term holders on cryptocurrencies like Ethereum and Bitcoin.
Unfortunately, the market has not yet recovered from the sell-off caused by the de-pegging of UST stablecoin and the Terra catastrophe in general.