Unlike other asset classes, with speculative cryptocurrencies I prefer to deploy a shotgun approach. Aside from core holdings of mainstream crypto assets, certain blockchain-based coins and tokens demonstrate promise. But with so many to choose from, such as the innovative Algorand (CCC:ALGO-USD), I have no choice but to spread my bets far and wide.
Initially, I was profitable in ALGO but I suffered from my own greed.
It’s possible that the Algorand coin could engineer a comeback, just like the way its development team engineered one of the most profound platforms to come out of the blockchain sector. As our own Tezcan Gecgil explained, ALGO is the culmination of an effort to bolster traditional finance with a decentralized network that can facilitate the creation of next-generation financial products, protocols and exchanges of value.
Perhaps most impressively, Gecgil notes that Algorand is a carbon-negative network as it does not involve mining. Therefore, efficiency is built into the ethos of this blockchain, making ALGO appealing for those seeking fundamental value in their crypto wagers.
But the underlying innovation of Algorand didn’t save the digital asset from the crypto collapse. And I don’t think the narrative is going to improve for a while.
Algorand Has a Tesla Problem
Although the permissionless blockchain network opens the door to myriad applications, the bottom line is the bottom line. In other words, people have to care enough to invest their money into the platform.
Unfortunately, I think Algorand is now running into a Tesla problem – and I’m not talking about the electric vehicle company. Rather, I’m talking about the Tesla, one of history’s preeminent scientists and inventors.
Well before perhaps anyone thought of the idea, Nikola Tesla proposed to financier J.P. Morgan the development of a wireless communications system that could relay telephone messages and even pictures throughout the world. At first, Morgan was intrigued, supporting Tesla with a large sum of money. But as the project grew long in the tooth, Morgan lost faith and refused to spend a dime more.
It’s a similar situation that Algorand is in right now. Yes, it has the right stuff but do people care? Apparently, not enough.
On February 12 of this year, ALGO hit a peak average price of $1.71. Applying Fibonacci retracement levels based on this price, we arrive at the following key technical support lines:
- 8% retracement: $1.06
- 50% retracement: 86 cents
- 2% retracement: 65 cents
- 6% retracement: 40 cents
At time of writing, Alogrand coins are priced at 76 cents each. Considering that the bears have control of the crypto market, a near-term target of 65 cents isn’t at all unreasonable.
If you ask me, it’s unreasonable to assume that the volatility will end at 65 cents. One of the consequences of a sharp rise higher is that the asset in question doesn’t build support lines on its way up. Therefore, prices tend to collapse through technically important thresholds, in this case, ALGO’s Fibonacci retracement levels.
Why the Volatility Could Last Longer Than You Think
There’s an argument to be had that Algorand and other digital assets could bounce quickly from its doldrums. Basically, the idea is that the weak hands of the market will soon be flushed out. Once that happens, the bulls will take the market higher.
With all due respect, I don’t believe that’s the case because first, the flushing of weak hands has been occurring since the advent of cryptocurrencies. What makes this round any different from prior crypto bear markets?
Actually, what is different is that institutional money supported the most recent rally. But that being the case, huge volatility will scare these folks. Institutions are in the business of making money, not cratering their funds by 50% in a single day.
The good news is that Algorand remains a relevant blockchain protocol no matter what happens in the digital market. Thus, patient stakeholders stand a solid chance of breaking even, perhaps turning a profit eventually.
But no one knows when that will be. If you’re going to hold ALGO for the long haul, you should be prepared for a two- or three-year time window.
On the date of publication, Josh Enomoto held a LONG position in ALGO. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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.