Just a few weeks ago, the cryptocurrency market was in a completely different place, with many rightfully wondering if the digital assets sector was about to enter an early and dark winter. However, a remarkable rally put an end to those concerns — at least on a temporary basis. But with cryptos again slowing down early in the week beginning Aug. 15, is this cause for concern?
On the bullish side of the spectrum, the breather is nothing more than just that — a breather. That said, because we’re talking about cryptos, a breather could mean big double-digit losses. If you’ve been around the blockchain market for a modest length of time, you know what I’m talking about. If you don’t, now you do!
But is there a fundamental reason why even ardent advocates of cryptos should pay attention to the recent volatility? By the numbers, the U.S. economy shows signs of a deflationary backdrop. True, certain in-demand goods and commodities have jumped in price. But that doesn’t take away from the fact that national GDP is nearing a blistering $23 trillion, whereas the employment level is still roughly 4% below pre-pandemic levels.
Higher productivity over a smaller workforce? That’s deflationary because it means fewer people are participating in the net output of the economy. As further evidence, you can look at M2 money velocity, which is down near all-time recorded lows. A measure of how much each unit of currency circulates in the economy, a low money velocity rating may suggest a lack of confidence in the recovery narrative.
While that doesn’t necessarily justify panicking on cryptos, you should be aware that the sector is facing less-than-ideal circumstances. Therefore, you want to tread carefully on these digital assets.
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Tether (CCC:USDT-USD)
- Dogecoin (CCC:DOGE-USD)
- Polkadot (CCC:DOT-USD)
- Stellar (CCC:XLM-USD)
Finally, it’s important to be aware that volume levels for cryptos have not been nearly as robust as they were during this year’s spring rally. Ordinarily, if prices are rising, you want to see volume supporting the bullish action. If not, that’s a sign that the market could stay cool until broader support returns.
Cryptos to Watch: Bitcoin (BTC)
As the benchmark of all cryptos, Bitcoin now garners attention from both blockchain advocates and mainstream financial analysts. Unfortunately, based on present circumstance, this newfound glory puts BTC in an awkward situation.
Anyone following Bitcoin will tell you that the $50,000 level is pivotal in order for investors to have confidence in a sustained rally. Primarily, this is due to market psychology. As ScienceAlert.com reminds us, humans have an “irrational preference” for round numbers. Since 50k is not only a round number but a halfway milestone between a five-digit price and a six-digit one, the level naturally captures our attention.
Interestingly, though, 50k is the prior support line now turned resistance. Adding to the complexity of the matter, BTC’s 200-day moving average sits at $44,555 at time of writing — the price point that Bitcoin is presently trying to rise convincingly above.
Needless to say, BTC bulls need to start making some moves higher lest it attract bears for its pensive price action.
Although Ethereum also had an impressive record-breaking rally, briefly breaking above $4,000 before correcting sharply alongside other cryptos, its technical posture is somewhat different from Bitcoin’s profile. Rather than a steady climb upward to fresh peaks, Ethereum basically catapulted higher over several days. Thus, quick bullish moves usually result in even sharper corrections.
As things stand, Ethereum’s resistance line is right around the $3,000 mark. You’ll recall that in May and early June, ETH proponents attempted to push the crypto coin above 3k, only to be met with a bearish firewall. Subsequent sessions saw Ethereum tumble nervously below $2,000 before embarking on its current rally.
However, it’s interesting that ETH is again stalling out at the 3k level. To have confidence in this momentum, I’d like to see Ethereum challenge and rise above the $3,500 level. If not, the bears will certainly try to push the coin below 3k again.
Cryptos to Watch: Cardano (ADA)
Although the top two cryptos hog most of the mainstream media’s attention, Cardano recently got some love from business publication Bloomberg. In a piece featuring ADA, it noted that Cardano was at time of publication the world’s third-largest cryptocurrency. Unfortunately, because this is the crazy land of cryptos, ADA fell out of the top three.
To add to the craziness, Cardano is back in 3rd place with a market capitalization of $71 billion. That translates to a per-coin price tag of $2.23. Obviously, $2 being a nice, easily divisible number and a clear milestone, ADA traders are likely happy to see ADA recapture the $2 level. The main challenge, though, is the speed of its recent swing higher.
It was only on Aug. 7 that Cardano was trading hands at around $1.43 a pop. Less than a week later, it was swapping partners at $2.19. Therefore, unless there’s something substantive driving ADA, it’s at risk of incurring a correction in the near term.
One clue to monitor is volume levels. Accumulation volume in May of this year is significantly higher than what we’ve seen so far in August, which suggests a lack of broader support.
Admittedly, Tether is a strange asset among cryptos to mention. As a stablecoin or stable-value cryptocurrency, USDT tracks the price of the U.S. dollar. According to Coinmarketcap.com, Tether is issued by a Hong Kong-based company of the same name. Further, it achieves this greenback peg through “maintaining a sum of commercial paper, fiduciary deposits, cash, reserve repo notes, and treasury bills in reserves that is equal in USD value to the number of USDT in circulation.”
Now, let me be 100% clear — as far as I know, Tether has yet to face an audit. So, we don’t know for certain what undergirds USDT, if anything.
At the same time, AI Multiple contributor Cem Dilmegani argues that even if USDT is a scam, it can still carry market value and perform the functions of a stablecoin. Basically, if others see value in it, the intentions of USDT creators may not matter.
Further, whether you choose USDT or another stablecoin, many exchanges offer generous interest rates for holding the risk. While I’m not going to recommend it, it’s something to think about as you expand and diversify your portfolio of cryptos.
Cryptos to Watch: Dogecoin (DOGE)
Everyone’s favorite meme coin, my personal feelings about Dogecoin have transitioned from early morbid curiosity to incredulity to outright disdain. Now, I would say that I’ve stabilized at indifference, perhaps mild respect in certain cases.
Although I’m skeptical about the long-term prospects for DOGE, I’m going to give credit where it’s due. First, at least a few early bird heavyweights made off like bandits. When you consider that we’re in an environment where success stories inspire others to take similar gambles, DOGE can move higher. Second, plenty of celebrities have weighed in on Dogecoin, which can only fuel said speculation.
Now, having said all that, you still want to exercise caution with these digital wagers. Primarily, DOGE has experienced declining accumulation volume levels since it rocketed into the mainstream consciousness in early January of this year. Indeed, when DOGE enjoyed another rally around mid-April, volume levels were elevated but not nearly as much as they were in January.
It’s the same situation today — big price moves but relatively low volume. That’s not a good combination since you want rising volume to confirm bullish price action.
From around late last year to early this year, blockchain proponents began eyeballing what many billed as the next big thing in cryptos, Polkadot. In fact, some folks used the term “Ethereum killer” to describe Polkadot’s potential.
Technically known as an open-source sharding multichain protocol, Polkadot features the ability to “process many transactions on several chains in parallel,” known as parachains per Coinmarketcap.com. This parallel processing power ramps up scalability for blockchain projects, representing a significant improvement over earlier-generation decentralized networks.
Further, the Polkadot protocol “connects public and private chains, permissionless networks, oracles and future technologies, allowing these independent blockchains to trustlessly share information and transactions through the Polkadot relay chain.”
While impressive, DOT is currently struggling at around $25, with its 200 DMA (sitting at $27.43) imposing resistance. However, before you write off Polkadot, one factor that distinguishes it from other cryptos is volume. Accumulation levels have been relatively consistent throughout this year, which suggests that DOT has a sizable fan base.
Still, it’s been among the most volatile of major cryptos over the trailing week so caution is a must.
Cryptos to Watch: Stellar Lumens (XLM)
One of the earlier and most promising alternative cryptos, Stellar represents an “open network that allows money to be moved and stored,” per Coinmarketcap.com. “When it was released in July 2014, one of its goals was boosting financial inclusion by reaching the world’s unbanked — but soon afterwards, its priorities shifted to helping financial firms connect with one another through blockchain technology.”
At a time when blockchain projects are hawking the end of world hunger or some other fantastical goal, it’s nice to see a network aim for the original goal of cryptos — to provide frictionless, borderless transactions of digital assets without the need of a third-party administrator.
As with so many other coins and tokens, though, the obstacle that Stellar faces now is to convince the masses to buy into the present rally. While there’s much talk about the institutional players moving in, accumulation volume levels have been steadily declining for XLM since the beginning of January.
Therefore, unless this trend reverses course, it may be best for investors to stay on the sidelines. If not, you’ve got to apply extreme vigilance.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, USDT, DOGE, and XLM. 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.