During the runup culminating in a remarkable height of over $60,000, many cryptocurrency advocates were calling for pioneer Bitcoin (CCC:BTC-USD) to hit six-figure targets. At the time, enthusiasm was sky high, but the potential seemed even greater due to the relative lack of mainstream integration for cryptos. However, the party came to a rather abrupt end, with BTC at one point falling below $30,000 post-peak.
Not surprisingly, the bulls woke up when — denying the bearish implications of falling below such a clear, psychological threshold — Bitcoin poked its head first above $30,000, then quickly charging toward and eventually above $40,000. Had a new rally begun? It’s still an open question, though if Bitcoin did recover, it would be one of the quickest recoveries on record. Of course, this would have massive implications for alternative cryptos.
But what is the likelihood that Bitcoin will move higher and perhaps carry other cryptos along for the ride? According to a March 2018 article from MIT Technology Review, “Metcalfe’s Law, which measures the value of a network, can calculate a cryptocurrency’s value–and predict when to get out.”
And how exactly does this law apply to cryptos? MIT states “The value of a network is famously accredited to Bob Metcalfe, the inventor of Ethernet and founder of the computer networking company 3Com. Metcalfe’s Law states that a network’s value is proportional to the square of the number of its users.” Thus, apply the same formula to cryptos and you can better gauge their “intrinsic” value.
According to a February Business Insider article, approximately 106 million people are using cryptos. Assuming that all of them are actively engaged in Bitcoin, you’d get what would seem an impossibly high intrinsic value. If Metcalfe’s law is accurate for gauging cryptos, it implies only a relatively few participants have meaningful influence on the sector, which means you should always be careful about volatility.
Here are seven altcoins to keep an eye on:
- Ethereum (CCC:ETH-USD)
- Binance Coin (CCC:BNB-USD)
- Cardano (CCC:ADA-USD)
- XRP (CCC:XRP-USD)
- Dogecoin (CCC:DOGE-USD)
- Uniswap (CCC:UNI-USD)
- Litecoin (CCC:LTC-USD)
Above all else, you should apply common sense with cryptos rather than trying to decipher all the news and rumors surrounding the sector. Further, money management is key. If you want to play here, you should do so with money you can comfortably afford to lose (say, 3% or 4% of your total portfolio at the highest).
Cryptos to Watch: Ethereum (ETH)
As the number two virtual currency by market capitalization, Ethereum generates plenty of interest. During the most recent bounce back that saw cryptos regain some of their losses from a few months earlier, ETH managed to hit a high of around $2,716.
For bullish investors, you’d want Ethereum to maintain this price point. Based off its $4,362 high, below are the Fibonacci retracement levels:
- 61.8% retracement: $2,696
- 50% retracement: $2,181
- 38.2% retracement: $1,666
- 23.6% retracement: $1,029
As you can see above, $2,696 represents the 61.8% retracement, suggesting that a dip here will see the bears attempt to drive ETH down to roughly the $2,200 level.
To be fair, some evidence indicates that there could be a “supply shock” in Bitcoin, where BTC investors store their holdings away for the long haul, thereby reducing supply. Possibly, this dynamic could drive up ETH and other cryptos, although one should be very careful using this metric as it’s not always reliable.
Binance Coin (BNB)
One of the cryptos that seemingly came out of nowhere, no one’s questioning Binance Coin’s credibility now. Tied to the Binance virtual currency exchange, which launched in July 2017, the platform became one of the biggest in the world. And the namesake coin currently ranks fourth in market cap, only behind Bitcoin, Ethereum and stable coin Tether (CCC:USDT-USD).
But can BNB hold on long enough to drive higher from here? In early May of this year, Binance Coin hit a high of approximately $691. Based on this peak, we have the following Fibonacci retracement levels:
- 61.8% retracement: $427
- 50% retracement: $346
- 38.2% retracement: $264
- 23.6% retracement: $163
As I write this, BNB is trading hands at around $330, making it one of the weaker alternative cryptos based on it being below its 50% retracement level. The other problem is that since February, it appears that Binance Coin is charting a bearish head-and-shoulders pattern.
Even if you’re optimistic about its chances, it’s best to be ultra-cautious here.
Cryptos to Watch: Cardano (ADA)
One of the few major alternative cryptos — not including stable coins — priced below $2, Cardano naturally appeals to speculators for this very reason. It’s not a complete gamble like some other high-profile digital assets. At the same time, it has plenty of upside potential based on the law of small numbers.
Also, it doesn’t hurt that celebrities have embraced ADA coins. Whether you buy it based on trading sentiment or the fact that the underlying platform utilizes an energy efficient proof-of-stake protocol, there’s a lot going on here. From its high of $2.46, we have the following retracement levels:
- 61.8% retracement: $1.52
- 50% retracement: $1.23
- 38.2% retracement: 94 cents
- 23.6% retracement: 58 cents
At a time of writing price of $1.37, Cardano is doing reasonably well. At this rate, it’s within 11% of its 61.8% retracement and is 11% above the 50% threshold. Still, one concerning factor is that the broader technical picture since January of this year seems weak. Approach with caution.
When XRP first entered the scene, the coin represented the broader application of blockchain technology, with the developing firm Ripple Labs exploring the architecture’s use for super-efficient and lightning-quick payment systems. While the overall concept was exciting, XRP also generated controversy because it’s not mineable.
Therefore, without an ability to truly participate in the buildout of the underlying blockchain network, XRP seemed like a centralized asset with shades of decentralization. Today, XRP has caused controversy for another reason, drawing the ire of the Securities and Exchange Commission for it being a security in disguise.
Ironically, XRP’s present controversy has sparked a wave of support among supporters of cryptos. But will it be enough? Following a peak price this year of roughly $1.96, here are the retracement levels:
- 61.8% retracement: $1.21
- 50% retracement: 98 cents
- 38.2% retracement: 75 cents
- 23.6% retracement: 46 cents
At a hair under 72 cents as I write this, XRP is a questionable asset. I’m not trying to cast aspersions — I’m just looking at the numbers. At less than its 38.2% retracement, I’d look somewhere else for opportunities.
Cryptos to Watch: Dogecoin (DOGE)
The speculative though lovable virtual currency that captured everyone’s imagination during its incredible run up to around 74 cents, Dogecoin proves that anything can happen in the wild world of cryptos. Developed as a joke and a form of social commentary, DOGE took on a life of its own. Sure enough, the underlying network is much more efficient and environmentally friendly than competing digital assets, but who are we kidding?
Of course, most people are piling into Dogecoin because of its speculative potential. To be fair, the asset has made a few daring gamblers millionaires, which in turn inspires more speculation. Based on its peak price, here are the Fibonacci retracement levels:
- 61.8% retracement: 46 cents
- 50% retracement: 37 cents
- 38.2% retracement: 28 cents
- 23.6% retracement: 17 cents
While I understand that Dogecoin is both a crypto coin and cultural phenomenon, popularity alone doesn’t drive valuations. As things stand now with the price at a hair under 20 cents, DOGE is trading well below its 38.2% retracement on a percentage basis.
You should be skeptical, since it shouldn’t take much volume to drive sub-dollar cryptos higher.
Fundamentally, Uniswap is one of the most compelling digital assets — technically a blockchain token — due to its decentralized finance (DeFi) platform. As CoinMarketCap contributor Camila Russo explains, “These distributed networks allow people to have control over their own assets and data and for value to be transferred from one person to another, without the need to use intermediaries like banks and other financial institutions.”
In short, Uniswap and similar platforms allow individual contributors to participate in functions that are only reserved for the privileged and well-connected relative to their traditional counterparts. For instance, through DeFi technologies, it’s possible for regular folks to act as market makers to provide liquidity, an unheard of concept for the regular stock market.
With Uniswap hitting a peak of just under $45 in early May, below are the Fibonacci retracement levels:
- 61.8% retracement: $27.79
- 50% retracement: $22.49
- 38.2% retracement: $17.18
- 23.6% retracement: $10.61
Based on a time of writing price of $24.38, UNI isn’t in a terrible spot and has some done some work. For the bulls, it recently swung above the 50% retracement and could make a run toward $28.
Cryptos to Watch: Litecoin (LTC)
The original altcoin, other hot cryptos have overshadowed Litecoin. Nevertheless, LTC remains a popular pick among speculators because it has a robust combination of credibility, a long track record and serious profitability potential.
During the last major rally in cryptos when Bitcoin first breached five digits on its way to just shy of $20,000, Litecoin peaked at around $360. This year, LTC was able to exceed that height on a brief intraday basis, albeit not by a terribly wide margin at just under $413. Given this peak, here are the retracement levels to watch:
- 61.8% retracement: $255.21
- 50% retracement: $206.48
- 38.2% retracement: $157.75
- 23.6% retracement: $97.46
Currently, Litecoin is trading at $140.69. No matter how you look at it, unless we get a bullish wave, LTC is in the danger zone. Trading approximately 11% below the 38.2% retracement level is not a favorable place to be.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, XRP, DOGE, UNI and LTC. 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.