Recently, several cryptocurrencies touched key technical resistance levels last seen during this year’s spring rally. And one in particular — which we’ll discuss in greater detail below — posted all-time highs. Much attention has been paid toward the inner dealings of institutional investors, who have overall sent cryptos to remarkable levels. Still, you want to be aware that everything has pros and cons.
Mainstream headlines have flashed over the past few days about blockchain whales that have been robustly acquiring digital assets over the trailing year. Undoubtedly, the activity of well-heeled participants kept the narrative of cryptos alive. This dynamic contrasts with the extreme rally we saw in 2017, where digital assets tumbled quickly from their highs following a desperate dead-cat bounce.
Invariably, several proponents of cryptos have embraced the newfound interest among institutional buyers. And just like the stock market, having institutional investors supporting your enterprise is usually a good thing. Indeed, The Nest points out that in 1950, only 8% of the “value of shares traded on U.S. markets was owned by institutions.” In 2010, this figure soared to 67%. Put another way, whales are instrumental for mainstream integration and exponential growth.
However, everyone knows that if following institutional buyers represented a guaranteed blueprint for upside success, then very few would adopt the contrarian approach. To be fair, institutional investors are usually right about their wagers. However, high-profile incidents including the 2008 financial collapse proves that even the big dogs can get it wrong. And you should always keep that lesson in mind when dealing with cryptos.
As well, when the whales lose heart, the resultant selloff can be ugly. Therefore, the much-discussed concept of not having any friends on Wall Street also applies to the blockchain markets. Here then are seven cryptos that have seen institutional support — but ones that you should be careful about regardless.
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Tezos (CCC:XTZ-USD)
- Polkadot (CCC:DOT-USD)
- Bitcoin Cash (CCC:BCH-USD)
- Binance Coin (CCC:BNB-USD)
As a final note before we get into it, careful doesn’t mean sell nor does it mean buy. Given how the narrative for cryptos can change in the blink of an eye, I’m going to spend my time providing insights and analyses and I’ll let you take care of the acquisition or distribution decisions.
Cryptos on Alert: Bitcoin (BTC)
Perhaps the power of institutional demand can be best illustrated with the remarkable recovery of Bitcoin. After hitting an all-time average price high of approximately $63,500 in April of this year, BTC suddenly suffered a sharp bout of volatility, affecting most cryptos downwind. After meandering around the low $30,000 level, Bitcoin slipped to just under this psychological support level.
Apparently, that’s what triggered the whales — and everyone else — with Bitcoin charging up the ladder. Very quickly, it found itself at the $40,000 level and it didn’t stop there. For a brief moment, BTC breached the $50,000 level, attracting even more bullishness before some decided to take profits.
Frankly, I’ve never seen anything like it. Between mid-December of last year till mid-July of this year, BTC was charting what looked like a long-term bearish head-and-shoulders pattern. To be able to bounce so sharply off this negatively tilted chart formation speaks volumes about the present ecosystem in cryptos.
Still, keep in mind that the most recent accumulation volume level is down roughly 85% of the highest accumulation volume this year. Also, note that overall participation (bullish or bearish) has been fading since early January, contradicting the positive implications of the present rally.
As No. 2 among all cryptos based on market capitalization, Ethereum isn’t just popular among individual blockchain investors. Rather, ETH has caught the eye of institutional participants as a riskier — though still relatively stable — asset to play the remarkable Bitcoin phenomenon.
In addition, many of the “analog” whales that have embraced cryptos are well aware that the Ethereum blockchain undergirds myriad decentralized projects around the world. Wallet and trading platform Coinbase (NASDAQ:COIN) issued a report stating that its institutional clients bought ETH for its “evolving potential as a store-of-value” and as a “digital commodity that is required to power transactions on its network.”
Given this backdrop, it shouldn’t be surprising that Ethereum enjoyed a remarkable comeback once Bitcoin decided to swing higher. On a percentage basis, ETH was much more attractive, with the coin dropping to around $1,750 in the back half of July before it shot up to over $3,300.
But just like Bitcoin, you want to be careful as volume levels contradict ETH’s rapid price expansion. Ordinarily, you want to see rising volume confirm rising prices. Instead, this measure of activity has been declining (for both bullish and bearish trades) since early August.
Cryptos on Alert: Cardano (ADA)
Admittedly, I’m not entirely sure if Cardano has attracted institutional investors. What I do know, however, is that ADA is the new meme stock of the blockchain market, with well-known personalities like Kiss rocker Gene Simmons and fitness guru Jillian Michaels backing Cardano.
I can’t really speak for any celebrity’s motivation for buying cryptos. However, with Michaels’ case, it seems like she really understands the intrinsic value of these assets’ underlying blockchain technology. For instance, regarding Cardano, Michaels tweeted that she bought 500,000 ADA coins and staked them.
Staking of course is central to the viability of proof-of-stake (PoS) protocols. This process differs from proof-of-work (PoW) in that rather than emphasizing computing power as the means to accrue the highest probability of the privilege to validate blockchain transactions (and thereby earn crypto rewards), the focus is instead on ownership of the target coin or token.
Recently, Cardano made big waves when it neared $3, an all-time record by far. It’s also intriguing that of the many cryptos that received bullish support over the past several weeks, ADA is one of the few where rising volume confirmed rising prices.
Keep an eye on this one.
Tezos is a strange one, well, at least for me because I’ve not only never covered it, but I’ve only barely heard it being mentioned a few times. Nevertheless, an article from Financemagnates.com reveals that XTZ coins have caught the eye of some institutional investors.
Personally, I find that bizarre given that Tezos currently ranks at No. 41 in terms of market cap. When you’re falling out of the top 10, let alone the top 20, you’re taking serious risks. To be sure, the choppiness of XTZ coins will make even longtime proponents of cryptos blush.
Still, you don’t want to let your own biases detract you from a potential opportunity. Fundamentally, Coinmarketcap.com states that “Tezos is a blockchain network that’s based on smart contracts, in a way that’s not too dissimilar to Ethereum. However, there’s a big difference: Tezos aims to offer infrastructure that is more advanced — meaning it can evolve and improve over time without there ever being a danger of a hard fork.”
Since consensus is one of the challenges behind decentralized protocols — as evidenced by big splits within the Bitcoin and Ethereum communities — XTZ might offer some much-needed operational stability, if not in its asset pricing.
While I wouldn’t bet too much on XTZ, this is one worth observing.
Cryptos on Alert: Polkadot (DOT)
Not too long ago, Polkadot generated headlines as proponents began calling the underlying network the “Ethereum killer.” While there’s certainly a basic investment thesis undergirding all cryptos — buy low, sell high — the sector is evolving to the point where many buyers are assessing the utility of the target blockchain technology itself.
As Coinmarketcap.com explains, Polkadot is an open-source sharding multi-chain protocol, enabling the “cross-chain transfer of any data or asset types, not just tokens, thereby making a wide range of blockchains interoperable with each other.” Labeled as the blockchain of blockchains, Polkadot’s claim to fame is that it can run processes in parallel as opposed to single-line channels.
In basic terminology, it’s the difference between a network of multi-lane highways as opposed to a single-lane roadway. Obviously, the former is a lot more efficient than the latter.
To be sure, Polkadot enjoyed a robust rally from July 19 onward, at a time when DOT threatened to drop below the critical double-digit threshold. At nearly $26 at time of writing, Polkadot has performed very well for speculators, though gradually declining volume since the beginning of August is a concern.
Bitcoin Cash (BCH)
Another interesting spotlight from the Financemagnates.com article mentioned earlier was that whales threw some of their weight behind Bitcoin Cash. As you’ll remember from years ago, the Bitcoin community failed to reach consensus on how to address the growing inefficiencies of the underlying architecture.
It wasn’t so much that Bitcoin’s blockchain was inefficient more so than its original developer or developers failed to recognize how popular the concept of decentralized investment products would become. As more people dove into cryptos, Bitcoin’s price tag accelerated sharply but its use as a peer-to-peer payment solution soured due to the intense traffic.
Obviously, consensus could not be reached and the network hard forked, with Bitcoin Cash being the end result. While a controversial coin due to the split from the original network, BCH is certainly more effective as a payment solution than Bitcoin is now, which has basically transitioned as a digital store of value.
If I had to guess, the whales buying into Bitcoin Cash likely anticipate an ecosystem where blockchains of utility and those of investment-driven catalysts coexist side-by-side. It’s worth watching, although BCH is quite volatile and has generally been disappointing.
Cryptos on Alert: Binance Coin (BNB)
Finally, Binance Coin has gotten some modest looks from institutional players, which may not be surprising given that as I write this, BNB commands the fourth-largest market cap among cryptos. Also intriguing is that BNB shares a similar technical pattern to Bitcoin, albeit in different months. Between February of this year till June, the digital coin also charted what appeared to be a bearish head-and-shoulders pattern.
Suddenly, along with other cryptos in late July, Binance Coin made an extraordinary comeback. After briefly crossing over the $500 threshold, BNB dipped into a range at around $480 on Aug. 24.
Unlike other digital assets, Binance Coin’s volume level throughout this current rally has been relatively stable. Therefore, it’s not really possible to say that volume is confirming the bullishness. At the same time, you can’t say that volume isn’t confirming broader market optimism. Thus, from a technical perspective, your wager on BNB may depend on whether you see the proverbial cup half-full or half-empty.
Of course, the likeliest explanation as to why some whales are bullish on Binance Coin is that it’s tied to the namesake crypto exchange — one of the biggest such exchanges in the world. As cryptos continue to go mainstream, investors may be betting on the eventual normalization of the blockchain.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA and BCH. 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.