Don’t say I didn’t warn you — Bitcoin (CCC:BTC-USD) is back!
Since writing that headline two weeks ago, we’ve seen Bitcoin almost magically resurge to $45,000. Ethereum (CCC:ETH-USD), my #1 cryptocurrency for 2021, did even better, growing by 32% and handily beating Bitcoin’s gains.
And why wouldn’t they go up? Despite investor unease, U.S. stocks are hitting record highs on better-than-expected jobs reports, a strengthening dollar (yes, that matters), and seemingly unending bond-buying by the Federal Reserve.
I’m still not buying Bitcoin, though. Despite the cryptocurrency’s dominance, there’s a limit to how large it can grow. 5x… 10x… 100x? Even if the Fed never stops buying bonds, Bitcoin would have to be worth more than all U.S. real estate combined to generate those returns. Plus BTC is a technological dinosaur; miners have essentially blocked all forms of improvements.
Instead, I have my eye on smaller cryptocurrencies. Moonshots like Dogecoin have easily returned 5,000% or more on my watch — a near-impossibility for Bitcoin to achieve today. And it’s something the folks at InvestorPlace’s Crypto Investor Network look at daily.
Today, we’ll take a look at several altcoins that look primed to jump on Bitcoin’s resurgence.
Alt Tokens Rise Again
Regular readers of Moonshot will know my No. 1 rule for cryptocurrencies:
Wherever Bitcoin goes, the rest will follow (directionally, anyway).
That’s because crypto is a sentiment-driven market where the average altcoin will only outperform if big brother is rising too.
As with any rule, there are some notable exceptions. One of my picks, Goes Up Higher (CCC:GUH-USD), shot up 4,500% last month over the same period Bitcoin was falling -11%. Other picks such as BabyDoge (CCC:BABYDOGE-USD) and Shikoku Inu (CCC:SHIKO-USD) gained 250% and 56% respectively over the same timeframe.
But I picked those while swimming against the tide. Out of the 100 largest market cap cryptocurrencies in that period, only one went up, per CoinMarketCap.
The Three Altcoin Trading Strategies
Now that the tides have turned, it’s time to revisit the three strategies I have for crypto trading.
Short-Term. One winning tactic is to use the Momentum Master strategy. By focusing only on altcoins with the highest momentum (and dumping them the minute it fades), investors can lock in gains of 30% or more within days. Repeating the process can potentially compound a portfolio into the millions.
Medium-Term. The second option is to buy a token with some recognizability. While these still usually have zero long-term value from a fundamental standpoint, investors shouldn’t ignore the entertainment factor. After all, Dogecoin turned thousands of investors into millionaires.
Long-Term. Finally, there’s buying the (comparatively) higher-quality coins with real-world use beyond financial speculation. I’ve highlighted Cardano (CCC:ADA-USD), ICP (CCC:ICP-USD) and others in the past as coins that could grind higher.
4 Altcoins to Ride Bitcoin’s Success: Short-Term Trade Ideas
Please note: I’m listing these picks not as an endorsement of fundamental quality, but as a reflection of my trading system’s recommendations.
After falling 80% from its July peak, this NFT blockchain game is back with a vengeance. Prices have steadily climbed to $60, adding $25 million in capitalization for the popular Binance token. CryptoBlades (CCC:SKILL-USD) is a slightly better bet than most because of its large community of fans. You don’t accumulate 75,000 Twitter followers and almost a half-million addresses without some serious investor involvement (or bots, in some cases).
Medium-Term Trade Ideas: Shiba Inu (SHIB)
I’ve long had mixed feelings about Shiba Inu (CCC:SHIB-USD). The currency looks a lot like Dogecoin (CCC:DOGE-USD) (i.e., it started as a joke), but its >500,000-fold rise to 0.03 cents last May made the Ethereum-based token too expensive for me. SHIB has since lost 80% of its value.
My Momentum tracker however, has finally reversed course on SHIB. Given its 20% resurgence over the weekend (coupled with Ethereum and Bitcoin’s rise), this altcoin could quickly become Reddit’s next fascination.
I consider SHIB an extension of Ethereum’s success. Last spring, the token gained notoriety when investors realized that Ethereum co-founder Vitalik Buterin’s 50% stake was worth almost $7 billion (The tokens were gifted to him as a gag instead of getting “burnt”).
And though Mr. Buterin eventually burned the coins himself, SHIB remains my favorite Ethereum-based token for its decentralization potential and community strength.
I’m re-iterating my recommendation on Dogecoin. It was interesting at 20 cents, and even more so at 25 cents.
Sure, we can argue all day long whether Dogecoin has any fundamental value. But let’s save ourselves the trouble and admit that it doesn’t matter. Much like collectible silver dollars or 90% of the things you see on Antiques Roadshow, Dogecoin is worth whatever people are willing to pay.
And it turns out that Dogecoin investors are somewhat predictable — a characteristic that makes it ideal for Momentum Master trading. My strategy flagged Dogecoin to sell at 40 cents in June and now it’s telling investors to ride the momentum back up the price chart.
Long-Term Trade Idea: Ethereum (ETH)
I’m sticking with my No. 1 long-term crypto pick of 2021: Ethereum.
Last week’s “London Hard Fork” was essentially a code upgrade for ETH that proved one thing: Ethereum’s stakeholders can still work towards a common good for those less familiar with crypto jargon.
Unlike Bitcoin, where miners have stymied efforts to move to energy-efficient “proof-of-stake” protocols, Ethereum’s community seems focused on helping the network survive, even if that means getting rid of all its miners and their power-hungry machinery.
Ethereum also remains dominant in the world of NFTs, where the ERC-721 token remains the gold standard. Though competitors like Binance (CCC:BNB-USD) will keep nipping at Ethereum’s heels, ETH’s head start gives it a clear advantage in a winner-take-all world of tracking digital goods.
Of course, there are risks. Most non-stablecoins have no fundamental value, and alternatives — from Binance to PayPal (NASDAQ:PYPL) — could make life hard for ETH investors. But if you’re looking for a reputable coin with plenty of fans, then Ethereum is a good bet.
Spamcoins Past their Prime
If there’s one hard truth about pumped-up cryptocurrencies, it’s that most come crashing back to earth.
Last week saw particularly severe losses among what I call “Spamcoins” — tokens that I suspect use click-fraud and trading bots to give the illusion of investor interest.
Two of these — RichQuack (CCC:QUACK-USD) and WolfSafePoorPeople (CCC:WSPP-USD) — deserve a special mention. And not just because I said “dump them” at the end of July. It’s because the day after I said that, they did precisely what you would expect:
They fell off the map.
- RichQuack. The Binance token’s Twitter account went from 5-8 updates a day down to 1-2 by late July. So far this month, QUACK’s developers have posted just one update.
- WolfSafePoorPeople. While the token’s Twitter account remains active, trading in the cryptocurrency has fallen off a cliff. Volumes have collapsed 95% from their peak.
Essentially, these tokens run on hype. And because the Securities and Exchange Commission and FINRA don’t monitor altcoins (yet), developers are free to swindle whomever they please.
That makes these coins questionable from a moral standpoint — something I’ve long considered. If you know something is worthless, is it wrong to buy it for $50, sell it for $100 (assuming you make no false representations), and watch the buyer get stuck with something worth $0?
Some investors will certainly agree. To them, even buying stock in GameStop (NYSE:GME) at $4 and selling it at an overvalued $480 feels wrong. And I understand that.
Other investors will shrug and say it’s much like playing poker. If everyone knows they’re playing a negative-sum game, then what’s wrong with a bit of card-counting as long as you aren’t breaking any rules?
Regardless, the newest crop of Spamcoins this week will likely follow the same parabola: 2-3 days of fantastic gains, followed by yet another bout of “I told you so” losses. So please, don’t hold Spamcoins too long.
|$1,300||The price author Allen Gannett paid to mint a series of four NFTs in March. Rising Ethereum GAS prices had pushed transaction fees to record highs.|
|$15||The current cost to mint an Ethereum NFT at today’s GAS prices, assuming the transaction uses 90,000 GAS.|
|4.6||Maximum possible transactions per second on the Bitcoin network. The world’s oldest cryptocurrency has maintained bottlenecks that favor mining operators.|
|65,000||Transactions per second that Visa (NYSE:V) can reportedly handle. Scalable cryptocurrencies like Internet Computer (ICP) are seeking to replicate that speed.|
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Here We Go Again, Again.
Friends often ask me where I think Bitcoin will go next.
The simple answer I give is, “well, what time frame are you thinking about?”
- Day-to-day. In the short-term, Bitcoin is a mean-reverting asset. Since 2018, no matter if Bitcoin’s price rose or fell the day before, there was a 55% chance it would do something different the following day.
- Month-to-month. For longer time frames, the opposite becomes true. Bitcoin’s monthly return continues in the same direction 54% of the time.
Those who trade cryptocurrencies for a living will already know this. Arbitrage traders are supremely talented at finding market inefficiencies, which tends to smooth out daily price bumps. Meanwhile, slower-moving retail traders jumping in produces momentum that can last weeks or months.
No single strategy fits everyone’s needs. Spamcoins are a day-trader’s game, while higher-quality cryptos are better for people willing to buy and hold.
Regardless, altcoins are a hotbed of Moonshot investments. Once you understand the inefficiencies in the “Wild West” of finance, you’ll find a whole world of possibilities waiting for you.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.