Undeniably, one of the most remarkable rallies we’ve had in the investment markets this year was Bitcoin (CCC:BTC-USD). Indeed, Bitcoin entered 2021 with an average daily price of over $29,000, a then all-time record. It proceeded to take out key psychological thresholds, peaking at a price a few hundred bucks shy of $65,000. Inevitably, though, such performance sparked concerns of a cryptocurrency bubble and possible market crash.
I consider myself to be a proponent of crypto. But, even the biggest of bulls sometimes lose their nerves. That was the case for me when I exited a significant portion of my BTC holdings so I can essentially be debt free (thanks to taxes, you’re never completely devoid of obligations, but you get my drift).
I dare say that other bulls also feel the pressure. Part of the reason why I’m worried about the cryptocurrency bubble and its potential to spark a digital market crash is that a surprising number of us crypto folks are self-aware. In other words, you don’t have to tell us that Bitcoin and similar assets seem like vapor. We have private conversations about when to punch out.
You may not want to listen to me. But you know who did listen to me? CNBC’s Jim Cramer. Okay, not really. But Cramer stated recently that “I paid off a mortgage yesterday with [Bitcoin].” As he put it, “It was like, kind of, phony money paying for real money.” Exactly. Once people have that a-ha moment, the cryptocurrency bubble may pop, sparking that dreaded market crash.
Of course, the internet’s argument becomes Jim Cramer is also an idiot. In that case, look at the darn charts. Also consider the mathematical erosion of upside momentum in Bitcoin. Sure, we could move higher from here. But chances are, the cryptocurrency bubble is about to pop (as it did before).
If so, here are the crypto tokens that are at risk in a possible market crash.
- Uniswap (CCC:UNI-USD)
- Chainlink (CCC:LINK-USD)
- Wrapped Bitcoin (CCC:WBTC-USD)
- Decentraland (CCC:MANA-USD)
- 0x (CCC:ZRX-USD)
- Filecoin (CCC:FIL-USD)
- Tether (CCC:USDT-USD)
For this list, I’m going to specifically consider tokens, which are technically different from crypto coins. To provide an extremely quick summary, coins are typically peer-to-peer (P2P) payment platforms while tokens actualize utility for a particular blockchain project (think physical tokens for arcade gaming machines). I believe that if the cryptocurrency bubble pops, tokens carry more risk due to their volatile nature.
Cryptocurrency Bubble: Uniswap (UNI-USD)
Looking back at the circumstance in how I came to own Uniswap tokens, I realize now that I succumbed to market pressure. When Bitcoin continued to rise to new plateaus, I had a strong bout of seller’s remorse. Against my better judgment and my previously well-established thesis, I bought UNI. While I don’t have a crystal ball, it was probably a mistake.
Still, my darker angels won out because I felt predisposed to Uniswap’s specialty, which is decentralized finance, or DeFi. Encompassing a broad range of functionalities and applications, one of the DeFi’s most stunning innovations — at least in my opinion — is interest-bearing crypto platforms. I personally use a DeFi solution and I collect remarkable yields: annually, 4% or 5% for some cryptos and 12% to 13% for other coins and tokens.
Long story short, Uniswap introduces regular folks to the burgeoning world of DeFi. Additionally, the Uniswap network allows average joes to become market makers (i.e. liquidity providers) for certain assets. This is pure innovation and very well could change the world one day.
But the problem for investors is, that change likely won’t occur right now. I’d be careful with UNI tokens if the cryptocurrency bubble pops. As we know from crypto history, a market crash eventually takes down almost every digital asset.
Our own Matt McCall would probably not be too happy with me for two reasons. First, it’s what I’m about to say. Chainlink is an interesting platform, but I also fear that investors won’t care about its fundamentals if the cryptocurrency bubble pops. Second, McCall has pounded the table on the underlying LINK token and it’s done very well. But I also think it’s time to consider taking some profits off the table.
Actually, McCall would mock me for a third reason. I also panic-bought LINK tokens, doing almost very little research into what I was getting into. And when I say very little, it wasn’t much beyond, “Chainlink, what a cool name!” Yes, that was a little pathetic. I absolutely do not recommend that anyone do this.
Fortunately, I lucked out. When I finally did my research, I discovered that Chainlink is a network that seeks to connect smart contracts with real world data. For instance, if you have a smart contract that executes based on certain parameters (say the Bitcoin price reaching a predetermined amount), the Chainlink protocol provides the data to the smart contract.
Like Uniswap, the network is truly innovative. But also like Uniswap, it might not be enough to save LINK tokens, at least in the short-term. In a market crash, people panic, and they’re probably not going to care too much about innovation. Not when they’re seeing red ink all over their portfolio.
Wrapped Bitcoin (WBTC-USD)
One of the peculiar developments in the digital token space is Wrapped Bitcoin. On surface level, WBTC looks just like Bitcoin — same price, same volatility, except that it’s wrapped. Therefore, many newbies and perhaps even some crypto veterans are confused. Wrapped Bitcoin sounds like an anti-prophylactic. Rather than protect you from risk, you get directly exposed to it.
Here’s why many people think this way. If Bitcoin and Wrapped Bitcoin have the same price, why bother wrapping your BTC? It seems like a completely unnecessary risk. However, proponents will argue that wrapping offers myriad advantages. Primarily, by converting to WBTC, you will integrate your investment into the Ethereum (CCC:ETH-USD) network, which features the largest ecosystem of any crypto.
This is probably neither here nor there. But I can’t help but notice Ethereum coins are currently up 60% over the past month. In contrast, Bitcoin is down 2.49%. That’s a huge difference, and it might speak to the underlying ecosystem’s stability and volume of engagement.
Nevertheless, the constant chatter about the cryptocurrency bubble has people spooked. In case we get a market crash in this sector, I don’t think the fundamentals of wrapping will matter. Again, when panic takes over, crazy stuff happens.
Among my friends, I coined the phrase “turning chit into it.” Actually, I have a much stronger word for “chit” but that’s the closest I can away with. Anyways, there was a brief period in crazy crypto land (roughly between 2016 to 2017) where you can turn chit — in other words, nothing of value — into it, or something of value.
Again, it’s what Jim Cramer talked about when he paid off a mortgage (lucky him) with cryptos. He turned chit into it. And that’s how I got into Decentraland, but in this case, it was a chit token that turned into an it token.
Today, the crypto market prices this digital asset at $1.37. It was only then that I bothered to research what the heck Decentraland was all about. Admittedly, I still don’t get it. However, Decentraland bills itself as a virtual reality platform where users can create and monetize their content. From my understanding, it’s a digital society, and the underlying MANA token powers its economy.
As crazy as this sounds, it’s a remarkable concept. Think about it — video game economies bring interactivity to a whole new dimension.
But there’s a problem: if the cryptocurrency bubble implodes, the market may feel lack trust toward these lesser-known tokens for a prolonged period of time. I’d be very careful with MANA should we get a market crash.
Generally speaking, I’ve been fortunate enough to avoid too many bag-holding experiences with the broader crypto space. But with 0x and its underlying ZRX token, I held a big bag of excrement during the last cryptocurrency bubble expansion and compression. I remember buying ZRX at 80 cents, which was at the high or darn close to it.
What bothered me even more was that I made such a great marketing pitch to my friends about 0x. Here was the perfect evolution of the blockchain. No longer were we limited to just payment transactions and stores of value. Rather, 0x and other platforms demonstrated that the blockchain held the potential for broader utility.
In this case, the infrastructure protocol, as Coinmarketcap.com explained, “allows users to easily trade ERC20 tokens and other assets on the Ethereum blockchain without relying on centralized intermediaries like traditional cryptocurrency exchanges.” I interpreted the wider mission as an attempt to extract more usability and convenience from the blockchain architecture’s inherent decentralized nature.
Unfortunately, I got my first real taste of reality in regards to tokenized platforms: fundamentals don’t necessarily align with investor sentiment. In many cases, they’re completely different concepts.
That’s why you shouldn’t get too enamored with “tokenized” narratives. If the cryptocurrency bubble implodes, be smart with your portfolio.
Throughout this discussion, I’ve mentioned crypto assets that I regretted buying, largely due to timing issues where I ended up holding the bag. With Filecoin, I regret not buying it when I had the chance. I lost my nerve when I really shouldn’t have. As you can see from the underlying FIL utility token and its price surge, this was a big mistake.
From my perspective, Filecoin is one of the most groundbreaking applications of blockchain technology, because it organically forwards the spirit of decentralization to other uses. For instance, Bitcoin proved that you can transfer value between parties without a human centralized intermediary. Filecoin aims to impart the same principle but with data storage.
Currently, data is stored in select silos in various parts of the world. However, this centralization of data is inefficient. Let’s say you want to stream a movie but the nearest center where the data is stored could be hundreds of miles away. Wouldn’t it be better if your neighbor could provide the data that you were looking for, thereby improving speed and reliability?
Even more impressive, the Filecoin network financially rewards people that offer spare storage. Basically, the network allows people to be data landlords.
Still, the FIL token has been very volatile. I would be super careful, in case the crypto bubble pops.
Cryptocurrency Bubble: Tether (USDT)
Lastly, I’m going to discuss what could be the most controversial token — Tether. If you haven’t yet grasped what a token is relative to a crypto coin, USDT provides the perfect answer. Supposedly, Tether is pegged to the U.S. dollar. However, Tether is not a dollar, but instead a tokenized representation of the greenback.
You can look at it USDT as a derivative. By exchanging your Bitcoin (or other crypto) for Tether tokens, you can profit in dollar terms but still stay in the crypto world.
Holding Tether is a heckuva risk. If I understand correctly, Tether has never been audited, so no one really knows if the USDT is indeed pegged to the dollar. Thus, if the cryptocurrency bubble goes awry, we could see a loss of faith in Tether, sending it and perhaps Bitcoin into the abyss.
On the date of publication, Josh Enomoto held a long position in BTC, UNI, LINK, ETH, and MANA.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.