If you support cryptocurrencies, I can imagine that you probably dismiss JPMorgan Chase (NYSE:JPM) CEO Jamie Dimon as an out-of-touch boomer, yelling the fiscal equivalent of “get off my lawn!” Nevertheless, one of the most powerful men on the planet was back on the attack against cryptos.
Labeling the digital asset sector’s benchmark coin as “worthless” during a virtual summit recently, Dimon made clear that his own opinions didn’t match that of his fellow big banking colleagues. Over the last several months, cryptos have enjoyed substantive sentiment boosts as major institutions have backed virtual currencies. Obviously, it doesn’t hurt that several cryptos posted astonishing gains in the year so far.
Whether Dimon’s comments arouses anger or ridicule, you’ve got to hand it to him for consistency. In 2017, he called the benchmark of cryptos a fraud, even threatening to fire any of his employees that traded it. In his most recent statements, the banker said that the coin was “a little bit of fool’s gold” and that “it’s got no intrinsic value.” Again, these are controversial statements, but they’re well worth considering.
Peter Schiff, a well-known critic of cryptos, has long labeled the sector a fantasy world, “a religion without a real god.” I recently came across a YouTube debate featuring him where he stated that fiat currencies and virtual currencies share the same basis of valuation: both require faith that they’re worth anything. But at least with government-backed notes, you have the support of a powerful, established institution.
But what do you have with digital assets? As someone who has benefitted from the beauty and the madness that is virtual currencies, I cannot in good conscious trash the sector. But I can warn that you should be sensible in your approach, particularly with these popular cryptos:
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Tether (CCC:USDT-USD)
- Polkadot (CCC:DOT-USD)
- Avalanche (CCC:AVAX-USD)
- Litecoin (CCC:LTC-USD)
Have I become bearish on cryptos? Not at all! It makes sense to have a tiny allocation of your portfolio in digital assets due to their relevance. But you should do so only after you have taken care of your core needs. And as always, you should be sensible, making sure to take something off the table before extreme volatility wipes out much of your nominal equity.
Cryptos to Watch: Bitcoin (BTC)
As I write this, Bitcoin has dropped below the $55,000 level, which ordinarily would pose concerns if we were talking about any other asset. But because we’re dealing with cryptos, there’s a tendency to believe that bad news is good news in disguise. To be fair, it’s not without good reason: BTC has printed some of the weirdest charts I’ve ever seen.
But that doesn’t necessarily mean you should dive into cryptos with abandon. I’ve read many analyses that discussed how the long-term trend line for Bitcoin is positive. That may very well be. However, prospective investors shouldn’t just look at price patterns but also volume indicators. As many technical analysts state, volume precedes price.
The warning flag regarding the current BTC rally is that the accumulation volume is conspicuously lower than when the coin charged up to its all-time high. To me, this suggests that if the institutional players or whales don’t see higher prices following their ramp up, then they’ll hit the sell button quickly and mercilessly.
That will leave the community of regular retail investors HODL-ing steep losses, something that you should attempt to mitigate if you want lasting success in cryptos.
One of the few major alternative cryptos that largely kept pace with Bitcoin during its recent run up, Ethereum admittedly looks mighty attractive consolidating between the $3,300 and $3,700 levels. However, on a technical basis, it shares the same concern as BTC; namely, the lack of volume confirmation.
Sure, acquisition volume increased between roughly mid-July to early August of this year. But overall, the levels are down significantly from what we saw early in 2021 and during the spring season, when ETH rocketed to its all-time high. This dynamic suggests that whales could dump their position if they feel that retail investors won’t help contribute to the bullish trajectory.
If you could get anything out of this analysis on cryptos, it’s that whales will think nothing about letting regular folks hold the bag on their libertarian delusions. The whales are too self aware to become victims of their own marketing scheme.
My point is not to trash Ethereum or other cryptos. Rather, you should be merciless first, as the market will certainly not care about your financial losses.
Cryptos to Watch: Cardano (ADA)
Fundamentally famous for forwarding the concept of proof-of-stake protocols in the real world, Cardano is arguably popular among contemporary investors because it’s the digital asset of the people. Priced at time of writing at a few cents above $2, ADA coins are easily accessible to almost anyone. It also doesn’t hurt that several notable personalities have entered the space, lending Cardano credibility.
Indeed, in the year of cryptos, Cardano makes a strong case for garnering pound-for-pound the most benefit. Since the beginning of January, ADA is up over 11 times — a truly remarkable tally. Granted, several other coins and tokens have printed even more impressive returns. But at one point, Cardano ranked as the world’s third largest digital asset by market capitalization.
As of this writing, that’s no longer the case, though ADA isn’t doing too poorly, holding the number four slot. Nevertheless, investors should take a cautious approach. While BTC has impressed in recent days, Cardano has been mired in a frustrating consolidation pattern. This might indicate that retail investors may be losing their risk-on appetite, which wouldn’t be the most encouraging outlook for cryptos.
During my time as an avid trader of cryptos, I was nervous. When you’re dealing with digital assets backed by who knows what, you’re not just worried about volatility as sharp as it is in this sector. No, unlike other markets, you have myriad counterparty risks to worry about, including the possibility that one day, this segment could just evaporate like overpriced tulip bulbs.
So my concern about cryptos isn’t centered on negativity. Instead, I do it as sort of a public service announcement, much like warnings against drunk driving.
Here’s the deal — there’s a very real possibility that much of the high prices that we see in Bitcoin is tied to obscure transactions involving Tether, a stablecoin or a digital asset pegged to the dollar. That in itself isn’t the problem. However, it does raise a question: how stable will Bitcoin be if Tether is found lacking substance?
According to a CNBC interview with the issuing company’s chief technology officer, Tether the firm did not deny (nor did it confirm, to be fair) that USDT is tied to Chinese commercial paper. Despite strong denials, that makes the rumor regarding ties to China Evergrande (OTCMKTS:EGRNF) specifically all the scarier.
Basically, it may be time to mitigate at least some of your USDT risk.
Cryptos to Watch: Polkadot (DOT)
Earlier this year, many publications regarded Polkadot as the Ethereum killer. As CoinMarketCap succinctly explained, “Polkadot is a sharded multichain network, meaning it can process many transactions on several chains in parallel (‘parachains’). This parallel processing power improves scalability.”
Further, the “network has a highly sophisticated user-driven governance system that also helps to secure it. Communities can customize their blockchain’s governance on Polkadot based on their needs and evolving conditions.” In theory, it’s a better mousetrap — and I don’t mean that in a pejorative sense.
While enticing, the problem with compelling cryptos is that the underlying projects assume that the sector will continue gaining in prominence. The thing is, maybe it will, but maybe it won’t — you won’t know until you know. In other words, if we found a way to organically keep mice away, we won’t need traps of any kind.
Admittedly, though, the interest in cryptos is so high now that it’s unlikely the digital asset market will evaporate. But you should still be cognizant that currently, alternative cryptocurrencies or altcoins are being driven largely by speculation, not because of the better-mousetrap thesis.
Another possible candidate for Ethereum killer is Avalanche, a relatively recent crypto, having made its market debut in September 2020. Per CoinMarketCap, “Avalanche is a layer one blockchain that functions as a platform for decentralized applications and custom blockchain networks.” On the surface, the buzzwords are enticing — and again, I don’t mean that in a sarcastic way.
However, I’m sure I’m not the only one wondering: how many of these things do we really need?
Whether we’re talking about Avalanche or some other network, eventually, we’re going to see some consolidation in this mess. When I think of the madness of cryptos today, I don’t just think about “iconic” boom-bust cycles like the tech bubble but also the bubble in initial public offerings during that time.
Now hear me out — I’m not questioning the value of AVAX specifically or any of these recent hyped-up digital assets. But when you have over 12,000 coins and tokens floating around, how can there not be consolidation? It’s the same thing that happened with excessive IPOs about two decades ago. Eventually, the system corrects — sometimes very sharply.
Given AVAX’s limited trading history, you should exercise extreme vigilance.
Cryptos to Watch: Litecoin (LTC)
The original alternative mousetrap to Bitcoin, Litecoin gained prominence initially for its mission-specific focus, to “provide fast, secure and low-cost payments by leveraging the unique properties of blockchain technology.” Relative to BTC and its rather clunky architecture — particularly as more people climbed aboard the crypto journey — Litecoin was successful in its approach.
That’s not to say that it isn’t successful today. Currently, LTC trades a hair under $170, which is overall an incredible achievement. After all, it wasn’t that long ago that you could buy one Litecoin unit for the price of a fancy vanilla latte at your favorite overpriced coffeeshop franchise. Today, the situation is much, much different.
But that’s also part of the challenge now with Litecoin. On a year-to-date basis, LTC is only up about 38%, which isn’t that exciting. Yes, on a trailing-year basis, the coin has risen about 240%. Still, compared to “in” cryptos, it’s not that much.
Personally, I’m holding onto my position after having sold enough to play with house money. But to be frank, I’m not expecting a whole lot, given that volume levels have significantly declined from earlier this year.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, USDT 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.