Financial resiliency: thriving in both bear and bull markets with FNDZ
Financial markets are volatile and often more prone to emotional response than reason. Switching between strategies to weather a storm or capture growth can seem like a daunting task for many risk-averse traders. FNDZ is the first De-Fi social trading platform that puts risk management at its core, with transparent fees, full asset ownership, and a community of proven cryptocurrency experts. In this post we’ll explore the ways in which FNDZ users can reduce risk and benefit from copy trading when faced with bear and bull market conditions using the FNDZ platform.
The terms ‘bear’ and ‘bull’ markets refer to periods of sustained decreases or increases, respectively, in general price trends within a market. There is some debate as to where these terms came from. Some argue that the names originated in the methods of attack of these animals: whereas a bull thrusts its horns upwards, signaling an upward trajectory of valuations and prices, a bear swipes its paws downwards, representing a downwards trajectory instead. To put it differently, bulls are energetic animals whereas bears are known to hibernate for extended periods at a time.
What does a bear market look like?
Despite growing interest from leading institutions, retail clients make up a significant and growing proportion of all cryptocurrency wallet holders (Achseon, 2021). Compared to institutions with a resource advantage, retail clients may be more vulnerable to heuristics and biases undermining their decision making process. They may, for example, be prone to short-termism, and have an outsize focus on short-term returns at the expense of long-term opportunities (Davies, Haldane, Nielsen & Pezzini, 2014). Although risk tolerance and behaviors have been found to vary by gender, age, occupational-, and marriage status (Kannadhasan, 2015), when considered as a whole retail clients’ aversion to risk is very large (Pålsson, 1996).
In the context of cryptocurrency, risk aversion collides with extreme volatility. Academic cryptocurrency studies have demonstrated that volatile markets produce herding behavior, in which individual lack of expertise and aversion to risk combine to heighten individuals’ tendencies to follow the flock (Ballis & Drakos, 2020; Bouri, Gupta, & Roubaud, 2019). Unlike in copy trading, in which the strategy of an expert is selected, in herding behavior the general trend of the market is emulated. This can compound into insufficient portfolio diversification, overvalued asset purchases, and, in many cases, panic selling.
Bear markets with continued declines can be a challenging time, especially for beginners. Low market sentiments create a ‘bearish’ outlook, meaning analysts expect prices to decline over the foreseeable future. Price drops and volatility may appear relentless and often scare traders into ‘heads or tails’ decision-making. Negative signals in the market can quickly lead to sharp sell-offs, exacerbated by highly leveraged positions and mass exits. Such periods of high liquidity are not a rare occurrence in the cryptocurrency world. Navigating these conditions requires a lot of experience to avoid a sudden loss.
Looking back on a tumultuous 2021
Despite frequent volatility, Bitcoin serves as a benchmark for the overall market. All cryptocurrency returns are strongly correlated to those of Bitcoin. Analysts frequently make early bear-market calls by reference to a traditional 20% price drop in Bitcoin. While these movements are commonplace in cryptocurrencies, they can equally occur during a run-up to new price highs.
The Bitcoin index reached an all-time high on Nov 09, 2021, at $68,161.99 USD. By Nov-27 it had fallen more than 20%, to a low of $54,500. On Tuesday, Jan 11, BTC price movements were hovering at around $41,700. Nonetheless, a bear market requires a 20% drop in price followed by a period of at least 90 days in which Bitcoin does not return to its previous highs.
As of Jan 11, we have yet to surpass this 90-day period without a price recovery. This is causing many analysts to speculate about a further decline in BTC prices and a possible fall below $35,000. Understandably, such market signals leave many concerned about their future performance and how they can manage their risk exposure.
Bull market optimism
Although Bitcoin’s value is famously unstable, there has never been a year where it did not increase by hundreds of percent. The astronomical rise in 2021 was, in part, driven by large institutions, a flood of retail clients, Tesla’s announcement to accept payments in Bitcoin, and a surge in NFT auctions by artists, celebrities, and other content creators.
As the saying by famed neurologist William J. Bernstein goes, “There are two kinds of shareholders, be they large or small: those who don’t know where the market is headed, and those who don’t know what they don’t know.” The main principle behind bull markets is simple. Prices are rising, so it makes sense to go long and buy dips as long as the capital allocated is sufficiently diversified. Afterall, following the general trend is a straightforward technical strategy. In May 2021, Ethereum broke all records, reaching a price of $4,850 (up 769% for the year), putting its market capitalization at $526 billion — an all-time high.
That said, no trend lasts forever and multi-year bull markets can be wiped away within a short space of time. At the height of the market euphoria in May, many analysts were boldly predicting a run up to $10,000 for Ethereum before a massive 60% crash dealt a swift blow to inflated expectations.
As a less experienced crypto trader, it can make sense to follow the trend. The better strategy is to adopt a phased approach rather than to jump-in lump sum and hold until eternity. The problem with bull markets is that they can surprise you on both the upside and on the downside. Staying on the same side of the momentum is a remarkable skill which many fall short of mastering. Thereupon the threat of losing money in a bull market is often underestimated and the options for managing risks insufficiently understood.
The cyclical nature of cryptocurrencies shows it is not for the fainthearted, and sharp gyrations are as much a part of everyday life as quick gains. But stay with us a bit longer; there is a way to create a hedge without digging through the endless weeds of financial analysis.
How to survive a bear market with FNDZ
The FNDZ Platform brings opportunities to manage these trends, and long-standing econometric observations by providing users the ability to delegate their funds to experts and select strategies that fit their needs, and thus avoiding herd behavior, short-termism, etc. FNDZ affords the opportunity for users to unhitch themselves from general market trends and instead follow the best-performing cryptocurrency experts — individuals who are in a better position to recognize and correct for their biases and heuristics than the typical retail client.
FNDZ offers users an unprecedented level of transparency to manage their risk exposure with unique insights into the performance of experts, their preferred asset strategies, and expected rates of return. The features built into the platform are designed to provide the key information needed to find a proven strategy that fits an individual’s risk tolerance. These features serve the dual purpose of fostering a competitive atmosphere between professionals and their strategies as well as providing users with a myriad of metrics.
On top of that, users will also be able to deposit into preset vaults created by the platform which contain specific assets, such as the largest and least risky coins (Bitcoin, Ethereum, etc.), or a vault containing the top 10 cryptocurrencies by market capitalization.
Riding the growth wave: how FNDZ can help crypto enthusiasts make better decisions
Transparent metrics for confident decision-making
The FNDZ platform enables everyone at every level to make confident financial decisions. The user experience is made simple with objective metrics to measure and validate performance. The dashboards provide all the insights needed to measure the track record of professional vault owners, understand their asset strategy, and compare their management fees with expected returns. This is made possible with so-called ‘Vault Profiles’ which guide users to their preferred course of action.
Vault profiles make up a significant portion of the FNDZ Platform. Packed with information, charts, and graphs, vault profiles are the digital face and space of experts in which they showcase their talent, style, and asset strategies. Profiles, like storefronts, should enable potential users to understand who the vault owner is, how they have previously performed, what their preferred tokens are, etc., with the aim of enabling each profile visitor to be in the best position from which to choose a strategy to copy. Vault owners have the opportunity to distinguish themselves and their strategies according to parameters such as risk, returns, values, degree of active management, and social or cultural factors. Vault profiles are individually listed, indexed, and searchable on the FNDZ Platform. Vault owners also have the option of associating their profiles with special-interest categories, such as layer 1 or dapp specific assets.
Not only that, FNDZ lets users get social with a broad community of like-minded users to learn new concepts, improve their skills, and get feedback on their decisions.
Better strategies for cyclical markets
One of the keys to success is diversification. Diversification can help mitigate the risk and volatility of a user’s portfolio, potentially reducing the number and severity of stomach-churning ups and downs. Because users copy a strategy rather than individuals, they can diversify their portfolio across a number of assets and strategies. Vault owners may have more than one strategy, for example catering to different levels of risk tolerance. Depending on risk appetite, users can easily delegate their funds to less-risky coins with more long-term stability. It is the job of the vault owner to manage any and all deviations to limit downside risk and effectively consider the digital asset space as a whole. Instead of worrying about tomorrow’s performance, users can simply kick back on autopilot and let seasoned experts operate on their behalf with proven, robust methodologies.
Competitive rewards for experts
FNDZ offers a number of features to foster a competitive atmosphere among experts. These are designed to maximize community exposure of successful vault owners and reward outstanding performance within a specified period of time.
The FNDZ Platform features tournaments in which vault owners can win FNDZ tokens by outperforming their competitors. Owners participate by paying an entry fee in FNDZ tokens. These tokens form part of the prize pool, which is distributed to the top performers at the end of a tournament period. Different tournament modalities will be held, with the parameters of tournaments varying by time period (e.g. best monthly or annual performance) and goal type (% profit, first to reach % profit, best short seller, etc). The benefit of these tournaments is two-fold: on one hand it incentivizes owners to attract capital with a robust investment methodology, and on the other hand, it acts as a signal of information to users looking for short-term gains or long-term stability.
The FNDZ Leaderboards are publicly visible rankings indicating the performance of all strategies. Positions on leaderboards increase visibility and broadcast performance. High scorers will simply attract more followers and, thus, higher earnings. Vault owners can participate in the leaderboard rankings by entering using their FNDZ Tokens. FNDZ will feature multiple Leaderboards showing an array of metrics as well as the profiles of the best performers within each category of metric: total strategy worth; percent return since inception; daily (24-hour) profit; weekly profit; monthly profit.
FNDZ is different from other copy trading platforms in that it lets users own their assets in full. Its De-Fi architecture makes copy trading simple, secure and compatible with a wider range of cryptocurrencies than established platforms can offer today. It isn’t just a copy trading platform, it FUELS competition and takes DeFi copy trading to the next level.
Guard yourself against the slings and arrows of outrageous fortune and take arms against the seas of troubles by joining the FNDZ platform and copying the positions of seasoned veterans.