The cryptocurrency market frequently experiences strong fluctuations at the end of the year, and this year is no exception. Investors should pay special attention to three main factors that could trigger 'big waves' during this period: profit-taking by investment funds, declining market liquidity, and the expiration of options contracts.
Profit-taking by investment funds
The end of the year is a time when investment funds typically take profits to realize gains, balance their portfolios, and prepare financial reports. This activity can create significant selling pressure in the market, leading to a sharp decline in cryptocurrency prices. For example, during the price surge of $BTC in 2021, profit-taking soared to $10 billion, contributing to significant market fluctuations.
Market liquidity declines
The end of the year often sees a decline in liquidity in the cryptocurrency market. This may be due to many investors pausing trading for the holidays or waiting for new signals from the market. Low liquidity makes the market more prone to fluctuations, with price movements potentially becoming more pronounced due to reduced trading volume.
Expiration of options contracts
The expiration of options contracts at the end of the year can create significant fluctuations in the market. When these contracts expire, investors may exercise or abandon their options, leading to large trades and creating pressure on prices. In particular, if a large number of options contracts expire at the same time, the market may experience severe short-term fluctuations.
Recommendations for investors
To deal with these potential fluctuations, investors should:
• Closely monitor the market: Continuously update information about the activities of investment funds, market liquidity, and the expiration schedule of options contracts to make timely decisions.
• Diversify the investment portfolio: Allocate assets across various types of investments to mitigate risks from the fluctuations of a single asset.
• Use risk management tools: Consider using stop-loss orders or derivative instruments to protect the portfolio against unexpected fluctuations.
Investors need to maintain vigilance and prepare thoroughly to protect their assets during this volatile end-of-year period.