Whenever anyone mentions the name Jim Cramer, eyes are bound to roll. It’s not the first time that I’ve heard that the CNBC contributor and Mad Money host is a perfect contrarian indicator. So when he stated on his show that cryptocurrencies are likely to face more weakness based on worrying trends coming out of China, I’m certain some folks have deduced that was the perfect time to buy cryptos.
Personally, I wouldn’t be so bold. For starters, not one person in the world represents a perfect contrarian indicator. Calling trends is like playing baseball — sometimes, you go through slumps and it happens to the best of them. Moreover, cryptos are unbelievably wild and volatile. Yes, digital assets can easily mint millionaires and deliver lifechanging profitability. Believe me, I would know.
But a darker side to cryptos exist that I wish more people — particularly the dime-a-dozen, Johnny-come-lately YouTube personalities — would acknowledge. Blockchain reward coins and tokens, while they apparently have a long-term upward bias due to their underlying decentralized innovation, can be detrimental to your financial health if not approached in a cold, calculated manner. For example, the romanticization of HODL-ing (holding on for dear life) contributed to the recent pain in cryptos.
Throughout my weekly updates on digital assets, I’ve attempted to assess the blockchain market in a balanced manner. When circumstances materialized with which I was uncomfortable, I let the readers know about it. In fact, earlier this month, I mentioned some cryptos that I felt were not only risky but enough so that I disclosed trimming my position on.
Such actions are not necessarily bearish. Far from it, controlling your greed and selling your positions is one of the best ways to approach digital coins and tokens. Otherwise, you will be subject to myriad circumstances that can ruin the value of your holdings. Therefore, the red ink is an opportunity to reassess how you want to manage your cryptos.
Here are the seven cryptos I’ll be assessing today:
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Tether (CCC:USDT-USD)
- Algorand (CCC:ALGO-USD)
- Avalanche (CCC:AVAX-USD)
- Uniswap (CCC:UNI-USD)
Please keep in mind that I’m not advocating selling all your cryptos. Rather, it’s that you should junk the “HODL-ing forever” nonsense and learn to frequently take profits as circumstances dictate. That way, you can play with house money — like I’m doing — and thereby ride the volatility with far less stress than normal.
Cryptos to Watch Closely: Bitcoin (BTC)
In my last write-up about cryptos, I mentioned that Bitcoin “needs to break convincingly above $47,000 for traders to feel comfortable. Otherwise, it’s time to be ultra-cautious.” I don’t regret those words because they turned out to be true. Still, I may have been too pensive with my phrasing. If you’re profitable in your BTC portfolio at any price below $42,000, you should consider pocketing some profits.
Note that I didn’t say sell all of your Bitcoin holdings. If you’ve endured the wild swings in cryptos, you know that in some cases, what would be an extremely ominous technical chart pattern is just another excuse for digital assets to jump higher. Sometimes, the analytical skills honed in the stock market don’t translate well to virtual currencies.
In this case, though, you might want to consider securing some of your paper gains into dollars or stable coins. Since early this month, BTC’s upward spikes have been plateauing at lower levels. With the severity of the China Evergrande (OTCMKTS:EGRNF) news in the backdrop, it’s not just the technicals that are worrisome — it’s the fundamentals too.
As one of the early alternatives to Bitcoin and arguably the first to truly explore the utilitarian value of blockchain technology, Ethereum enjoys significant support from advocates of cryptos. Indeed, the reason why blockchain-based initiatives have flourished over the years is due to the Ethereum system forming the backbone of various decentralized architectures.
While that makes for an extraordinarily compelling narrative on the future of blockchain projects, it hasn’t been enough to save the underlying ETH from negative market pressure. You can probably make the argument that on a technical basis, Bitcoin stands at a superior position to Ethereum. That’s because while BTC has continued trading above its key psychological threshold of $40,000 (at time of writing), ETH has slipped below $3,000 a couple times in the past several days.
To be fair, we are talking about cryptos — in less than a day, ETH could be storming toward the $4,000 level and challenging its all-time high. I just don’t think it’s probable.
Admittedly, ETH has jumped higher starting with the Sept. 22 session under intense acquisitive (bullish) volume. But with so many institutional investors worried about the China Evergrande fallout, I’m not sure if the big wigs want their money tied up to such a volatile asset class like cryptos.
Cryptos to Watch Closely: Cardano (ADA)
One of the most popular alternative cryptos (or altcoins) in the digital market, Cardano started attracting significant attention from various celebrities and influencers. Earlier this year, Kiss rocker Gene Simmons generated headlines when he disclosed that he purchased $300,000 worth of ADA. Naturally, that sparked significant buzz, and why not? Priced at a fraction of what established cryptos were commanding, Cardano appealed to the everyman investor.
But for many people, the crowning achievement of this “cheap” altcoin was when Bloomberg published a feature about it. By August, the digital asset had become the world’s third most valuable virtual currency based on market capitalization. But like the overhyped superstar athlete that switched allegiances to another team, things haven’t quite panned out for ADA.
Interestingly, since the publication of the Bloomberg article to the time of writing, Cardano is basically at parity, having gone full circle from its journey to above $3. But as I mentioned in early September, I was uncomfortable with ADA’s chart pattern and so I sold a significant stake.
If you want to know my take now, I’m still concerned prices can head lower.
As a stable coin — essentially a digital asset that mirrors the price of the U.S. dollar — it’s difficult to be directly bullish or bearish on Tether. But especially during these volatile times, stable coins offer significant value as they provide an easy, convenient platform to secure your paper profits in whatever cryptos you hold. However, the China Evergrande situation might change this narrative.
I’ve been mentioning this flashpoint so let’s talk about it. A Chinese property developer, Evergrande represented the incredible bullishness of the underlying country’s economy, per a Wall Street Journal report. But now that the business has run out of credit — due largely to policy shifts by China’s government — Evergrande’s bonds have collapsed.
The implications have serious risks for China’s economy overall. But a specific concern regarding USDT is that the opaque company that oversees Tether may be exposed to Evergrande. To be completely transparent, Tether Holdings Ltd. stated that it didn’t hold debt or securities of the property developer.
Even so, the Wall Street Journal reports that a worsening crisis in China could harm USDT. So investors who have significant holdings of Tether should think about converting to another stable coin.
Cryptos to Watch Closely: Algorand (ALGO)
One of the seemingly come-from-nowhere cryptos is Algorand, billed as “a self-sustaining, decentralized, blockchain-based network that supports a wide range of applications.” I had acquired some ALGO coins during one of the mini-rallies and I soon regretted the decision.
But given the wild nature of digital assets, I soon found myself quite profitable. As luck would have it, when El Salvador shocked the world when it stated that it would consider Bitcoin to be legal tender, Algorand also emerged as the platform of choice to build the nation’s blockchain infrastructure. Suddenly, ALGO rocketed to above $2, sparing my blushes.
Still, in my last update, I addressed the inquiry of whether or not Algorand could continue moving northward. “In a word, no. The technical posture simply doesn’t look very inviting in the near term. Therefore, I converted a significant portion of my Algorand holdings into stable coins, while keeping enough ALGO on hand to play with house money in case my bearish thesis is wrong.”
I’m glad I did make the conversion and you might want to make a similar risk-exposure cut, as the situation still looks poor.
Generally speaking, trading cryptos is akin to watching the Monaco Grand Prix. With very few passing opportunities available at the famed street circuit, whoever wins pole position wins the opportunity to lead a glorified parade lap of an auto race.
I have the same frustration with Bitcoin. If something happens to the original benchmark digital assets, eventually, all other cryptos follow suit. Rarely do exceptions exist — and they materialize only for brief moments before tumbling down to wherever BTC is headed.
Because of the fundamental nature of the recent crash in cryptos — namely that China could implode — you’d think that the red ink was universal in the sector. However, a few crypto coins did manage to avoid the onslaught, at least for now. One of them is Avalanche, which had gained 17% over the trailing seven days since Sept. 23.
Is that reason enough to bet on AVAX? I would be extremely cautious. If anything, you’re not getting a great rate — buying near all-time highs when other cryptos are sinking is risky. Also, as a new concoction, it could suffer from quick abandonment.
Cryptos to Watch Closely: Uniswap (UNI)
The recent volatility notwithstanding, there’s no denying that cryptos have matured since the fateful day when Bitcoin became a thing. Today, it’s not unusual for mainstream business media outlets to report on BTC’s price swings. Indeed, it would be strange if a program didn’t mention virtual currencies based on the number of high-profile investors and institutions that have climbed aboard.
Thus, on paper, it would appear that Uniswap offers a compelling upside argument. A popular decentralized trading protocol, Uniswap’s primary claim to fame is its role as an automated market maker. Through the decentralized finance (or DeFi) innovation, Uniswap makes it possible for anybody with an internet connection to help provide liquidity for certain crypto trades.
As well, through participation in the protocol, users can enjoy passive-income opportunities via interest-bearing cryptos. Granted, the idea is risky but it nonetheless gives any investor a chance to build their wealth through novel means.
But just because a platform offers substantial utility doesn’t mean that its underlying token will be spared volatility. It hurts me to say this because I own UNI, but the token is printing some of the ugliest chart patterns I’ve seen among cryptos. It may be time to consider trimming some exposure.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, USDT, ALGO and UNI. 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.