Before the inkling of suspicion reaches your consciousness, no, I’m not bearish on cryptocurrencies per se. Rather, I like to consider myself a realist. As a long-term holder and supporter of Ethereum (CCC:ETH-USD), I’d love to see prices hit five digits — I heard on the YouTubes someone talking about $45,000 ETH several months ago. But for the time being, we have more pressing concerns to focus on.
As I write this, Ethereum has poked its head above the $3,000 level, currently trading a few bucks shy of $3,100. Just two days ago, ETH-USD was swimming in treacherous waters at around $2,700. Given that $3,000 represents strong technical and psychological support, it was absolutely crucial that the word’s second-biggest cryptocurrency reclaim this threshold.
Still, the battle has only begun. That’s because with Ethereum printing an all-time high of nearly $4,200 earlier this year in May, traders — both the retail kind as well as the institutional variety — will want to see a convincing trek toward the last high. In other words, even $4,000 is ultimately not enough.
Like addicts, market participants are looking for greater highs. At minimum, I truly believe that traders need to see a credible narrative that takes Ethereum to $5,000 — a nice, tidy milestone. Otherwise, the risk is that retail traders will abandon ETH for something that will give them the percentage-based gains they’ve become accustomed to, either through speculative cryptos or an entirely different asset class.
For institutional investors, the threat is even more real and pernicious. During the decidedly bullish phase of cryptos over the trailing year, proponents celebrated the involvement of major institutions. Now, that same large-scale acquisitive volume could be a liability.
You’re not going to find too many institutional buyers “diamond hands” their way to catastrophic losses.
Think Hard and Think Fast on Ethereum
As I said at the top, I’m not a crypto bear. In fact, if you’ve been following my work, you might know that virtual currencies changed my life. Through countless hours of due diligence and my God-given ability to see what others cannot, I made bold investments in Ethereum and other choice digital assets.
Except that’s all junk. Let me tell you something that very few people are willing to say out loud: I lucked into this sector.
Yeah, dumb luck. That’s the difference between making it big and not making it at all. I laugh when I read all these FIRE (financial independence retire early) articles from various publications. Apparently, from running a side hustle and not buying coffee every day, you can somehow save 50 years or more of expenses.
Chances are, such stories are leaving out key details or are just plain lying.
Which brings me back to Ethereum. Many self-appointed gurus out there are convinced that the China Evergrande (OTCMKTS:EGRNF) liquidity crisis is a mere blip, that ETH is getting ready to swing back higher. But it’s also possible that the digital market could suffer a massive blow.
Back in 2018, researchers at the University of Texas at Austin found evidence that traders use Tether (CCC:USDT-USD) — a stablecoin pegged to the value of the greenback — to prop up the Bitcoin (CCC:BTC-USD) price during market downturns. This dynamic would imply that Tether is a pivotal component of the Bitcoin (and therefore crypto) ecosystem.
Well, if China’s commercial paper markets starts to lose its balance, that could impact stablecoin reserves. Moreover, nervous investors may dump all speculative assets — including of course cryptos — to raise cash.
It raises the question: just how comfortable are you in the bullish thesis for Ethereum?
Play with House Money
Personally, I’m comfortable with the bullish thesis but only because I’m not entirely beholden to the thesis if it goes awry. Yes, it would hurt if Ethereum goes south. However, I’ve learned over this past year to play with house money.
When you’re handsomely profitable, you’ve got to get in a habit of exiting the markets with something. Otherwise, you’ll forever be a slave to these unpredictable ebb-and-flow cycles.
And believe me — this is an unpredictable market. No one knows what’s going to happen next. Which is why again, you’ve got to take money off the table and live for another day. It’s your resting blood pressure that will thank you.
On the date of publication, Josh Enomoto held a LONG position in ETH, USDT and BTC. 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.