January 2022

Review of Gabx : the trader manager Diabolo


2021: a thwarted rise

The year 2021 did not live up to its promise. Favourable conditions in the early months led analysts to believe that institutional buying would create a favourable environment for delivering strong results. But as is often the case, the reality was quite different and from mid-April onwards things were much more complex.

A long string of all-time highs for BTCUSDT ended in mid-April with an 18% drop on the 18th. It wasn’t until November 10th that the currency broke its former highs for just a few sessions and then fell back. December was not spared, with a brutal 25% drop in prices in a few hours on the morning of Saturday 4th. Although the darling of crytpo-maniacs is showing a 59% increase over the year 2021, this rise was anything but a smooth ride.

Bitcoin’s roller coaster ride around the 50,000 mark wasn’t enough to make more than one trader’s heart beat faster, and two other phenomena finished off the few survivors: Ether’s appreciation of more than 200% against Bitcoin, and the arrival of a new theme, that of Metavers. These two factors alone diminished an already low visibility and shattered the few existing benchmarks.
All markets are in constant motion in search of the equilibrium price. In this chaotic world, investors look to a few benchmarks to anticipate an asset’s performance. It is very difficult to make a decision when these familiar benchmarks no longer exist and correlations between products suddenly jump. Bitcoin and Ether are two of those beacons that light up the investor, but when one starts to shine brighter than the other, the ship’s captain will be hard pressed to know which one to follow. If the rise of Ether could flood the market with euphoria over a few sessions, this induced rise always ended up stopping very quickly as Bitcoin remained weak overall. The result was always the same: a violent backlash on the Alts market which, like an over-stretched rubber band, corrected violently downwards and lost in a few hours a good part of the momentum accumulated in the past weeks. The classic buy and hold strategy that works very well in bull markets proved very frustrating this year. Only regular profit-taking on the upside could produce results, results that may have seemed meagre compared to the 50-70% returns on a trade at the beginning of the year.

The second disruptive phenomenon came from the sudden infatuation of investors with the Metaverse sector, an interactive virtual world that promises a second parallel life in which we can sip a Pina Colada with Elon Musk on a beautiful beach in the Seychelles, all while sitting in our beautiful gamer’s chair. The tokens belonging to this universe have been veritable liquidity pumps concentrating volumes that were already low. These dollar hoovers have deprived yesterday’s star innovative projects of fresh money, making the whole Alts market even more difficult to pin down. The tempo of the waltz of investment themes (blockchain and Web 3, Oracles, Defi, NFT, Metavers…) is frantically accelerating and turning the investor into a real whirling dervish. Despite numerous websites, each more technical than the last, which track thousands of data points and addresses in real time, as well as the slightest variation in open positions or liquidation levels, it has become very complicated to follow where the money goes. The investor has become a sleuth to track down and guess the token of the day. And beware of those who waste time tracing this money flow: as mentioned above, the rises are short and the risk of buying the tail end of the movement is high.

If the Alts market had a nice progression over the year, the reversals were numerous and deep enough to force the Diabolo traders to sell part of their positions during these reversals, as a matter of prudence. And returns are like variants: just when you think you’re done, a new one comes along. We can thus describe 2021 as a thwarted rise, which even turned into a latent crack at the end of the year.

2022: what to do?

This new year starts exactly like 2021 ending with a Bitcoin that can be described as leaden sole. Traders have also found an excellent pretext to justify the decline: inflation, the rise in central bank rates and the hawkish comments of the Fed. The end of quantitative easing, announced for the next few months, would be the signal to sell so-called risky assets such as technology stocks or crypto currencies. It is certain that a contraction of the money supply and the end of abundant liquidity will deprive speculators of their daily dose of amphetamines and the few dollars left to invest will then go into government bonds and the largest capitalisations of the Dow Jones. No one really knows today what the impact on the markets will be if the easy money policy is stopped, as this policy has been going on for a long time at an incredibly high level. One thing is certain in my opinion: neither the Fed nor the ECB will want to be responsible for a global stock market disorder and the golden taps will only be closed very slowly and a reassuring and abundant official communication will accompany this gradual fuel stop. We can therefore easily anticipate a smooth weaning.

The technical analysis of the crypto markets does not show any major trend reversal for the moment. The decline of the last few months is, until proven otherwise, considered a consolidation in a bull market. A break of the 2021 lows would be a first major signal that the bullish momentum needs to be challenged. We therefore continue to believe that the long-term targets are higher and that both leaders should break their all-time highs in 2022. The market should continue to see an influx of liquidity with new institutional entrants and the development of ETF-type structured products. But as tokens appreciate as a whole, investors will have to be more selective as many tokens will sit on the sidelines and fail to perform. The 2021 trend that saw significant disparities within the crypto universe is thus likely to continue.

The Diabolo trading team has set itself the goal for the year of adopting a more flexible and opportunistic investment policy at the expense of Buy and Hold. Portfolio turnover should therefore increase, losses should be closed out more quickly and profits should be taken in more quickly. We believe that this more reactive approach will allow us to achieve better returns in complicated markets.

The whole team joins me in wishing you a happy 2022. We hope that we will get through this year together and that we will live up to the trust you have placed in us.

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