Perhaps one of the most frustrating aspects of the cryptocurrency market is its utter lack of predictability. Sure, you’ll find proponents on the internet and social media claiming to have the Midas touch. But let’s face it — most of these folks are permanently bullish on cryptos, which makes their claims about a viable system difficult to ascertain.
That’s not to suggest that people should dump all their holdings. Rarely is an opportunity a 100% buy or sell proposition — you’ve got to give some margin to the market, which can make a fool out of anyone. And that’s especially the case for wild cryptos. You don’t know until you know. Still, technical and fundamental indicators suggest that you should use this present rally to sell some positions into strength.
First, banking on the positive developments for cryptos comes at a big risk. For instance, rumors abound that Brazil will accept virtual currencies as legitimate legal tender, following in the footsteps of El Salvador. As well, U.S. Bank — a subsidiary of U.S. Bancorp (NYSE:USB) — recently announced that it will launch a custody service for specific digital assets for fund managers. But the issue is that this could become a buy-the-rumor, sell-the-news headwind.
Second, the mainstreaming of cryptos is both a blessing and a curse for the blockchain asset market. In the segment’s early days, it was possible to enjoy massive gains on various cryptos because the industry was largely an unknown. But more involvement — particularly institutional involvement — also means the ability to short the market. That facilitates true price discovery, which in turn should mitigate volatility over the long run.
But is that what investors of digital assets really want? One of the biggest (if not the biggest) draw for virtual currencies is that you can accrue massive wealth in a short period of time. With greater institutional involvement, that scenario becomes less likely. Therefore, investors should carefully consider their risk-reward profile before buying these cryptos:
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Tether (CCC:USDT-USD)
- Dogecoin (CCC:DOGE-USD)
- Bitcoin Cash (CCC:BCH-USD)
- Stellar (CCC:XLM-USD)
There’s one final issue to bring up, which is the Mt. Gox resolution. The bankruptcy case involving the former world’s largest crypto exchange could result in a big payout for claimants. After such a tiring journey, do you think they’ll hold on for dear life (HODL)? Or will they just dump their cryptos? I think the latter is likely, suggesting you need to be on alert.
Cryptos to Watch: Bitcoin (BTC)
The centerpiece of all cryptos, Bitcoin may no longer be the investment of choice for the blockchain proletariats. After hitting a recent high of over $55,000, Bitcoin has transitioned from a libertarian paradise of a currency, one that is decentralized and thus away from the printing press of central banks to an asset that only the aristocratic can own in great numbers. It’s an insane irony.
Still, I’m going to give credit where it’s due. After a series of worrying trades where BTC fell below both its 50- and 200-day moving averages (technical indicators of near-term and longer-term strength, respectively), the original crypto coin rocketed higher from the brink of possible catastrophe. That’s usually not how this works which may suggest a lack of maturity.
However, that maturity is surely coming with major institutions — such as the aforementioned U.S. Bank — integrating cryptos into their services. But with maturity comes price discovery, which is not necessarily helpful for those seeking rip-roaring gains. Further, with the specter of the Mt. Gox resolution dumping several BTC units into the digital ecosystem, I’d approach this rally very carefully.
Similar to Bitcoin, Ethereum found itself struggling for traction throughout most of September, with the crypto coin dipping below its 50 DMA. However, the one difference between BTC was that ETH managed to stay above its 200 DMA, albeit barely. Fortunately, that was enough since it fought its way above the psychologically important $3,000 level.
Presently, Ethereum trades hands at about $3,600, putting it within striking distance — relative to the movement in cryptos — of the $4,000 level. Still, it needs to get a move on. Based on the rising trendline of ETH, the coin needs to break above $3,700 and maintain this level for it to have a reasonable shot at 4K and beyond.
Anything can happen, so I’m not going to set absolute price targets. However, prospective investors should note volume trends. Since early this year, accumulation volume, a bullish indicator, has been declining while prices have been rising. Generally, you want to see a direct correlation — rising price supported by rising volume. Without volume confirming price, you should be careful about getting too heavily involved.
Cryptos to Watch: Cardano (ADA)
One of the surprise cryptos of this year, Cardano has always been an intriguing digital asset thanks to its proof-of-stake protocol. Presently, most cryptos are tied to proof-of-work architectures, which emphasizes raw computing power. Naturally, such energy usage has environmental advocates concerned, which is why proof of stake is such an important concept in the blockchain narrative today.
For that and some free marketing thanks to an influx of well-known personalities jumping onboard the Cardano bandwagon, the crypto coin at one point secured a top three ranking based on market capitalization. With a current value of $74 billion, it hasn’t lost much of a step though, down into fourth place, just shy of a billion away from reclaiming the third spot. Plus, it doesn’t hurt that ADA is priced in the low-single digits, allowing anybody to psychologically satisfy the natural urge for large nominal acquisitions.
But will that actually translate to market performance? At the time of writing, it doesn’t seem that way. For instance, over the trailing seven days, Bitcoin and Ethereum are up 27% and 22%, respectively. But for Cardano, it’s up only 11%. That’s a respectable figure, but ADA is the smaller-priced altcoin. It really should perform better than the established high-priced cryptos.
Therefore, bullish investors ought to be extremely careful before plunking serious cash on ADA.
As someone who likes to practice profit-taking as much as possible with wildly trading cryptos, stablecoins — or digital assets pegged to the U.S. dollar — offer significant convenience. Of course, it’s always safest to convert your holdings into actual greenbacks. But if you want the benefit of mobility, stablecoin transactions provide the lightning-quick responses you’ve come to expect from your favorite cryptos.
However, the China Evergrande (OTCMKTS:EGRNF) crisis forced millions of investors to reconsider the risks associated with stablecoins. For instance, Tether, the company behind its namesake stablecoin has always had to confront rumors that it doesn’t own the paper to back up its digital promises.
Indeed, a recent New York Times article stated that Tether “settled an investigation by the New York attorney general this year that alleged that it had obscured what it held in reserve. Officials fear a digital-era bank run may loom if new rules aren’t created soon for the booming stablecoin sector.”
To be clear, Tether has denied that it’s exposed to China Evergrande. However, the company could still be tied to other organizations that are exposed to the unfurling mess that is the credibility of Chinese commercial paper.
It’s not a time to panic, but you may want to minimize your exposure to USDT.
Cryptos to Watch: Dogecoin (DOGE)
Throughout this year, while covering the incredible rise of cryptos, I haven’t been blind to some of the more questionable elements of the digital asset space. Despite the adoration piled onto Dogecoin by global influencers like Elon Musk, I haven’t been that supportive of the canine-inspired meme.
Personally, I’ve always thought that Dogecoin used to be fun when nobody was talking about it and when I had acquired a small stake, possibly as a joke (I really don’t remember). Now that DOGE has gone mainstream, I’m much more concerned about wanting to make sure I’m not leading people astray.
After all, we are talking about an asset that was priced at a fraction of a fraction of a penny. In almost every case involving such diluted “value,” the end game ends poorly.
But that hasn’t been the case for Dogecoin yet, which forces me to lend it a modicum of respect. Further, if you must speculate on cryptos, you might as well consider DOGE. Thanks to the law of small numbers — and some loose correlation with Bitcoin — you can take measured risks for the prospect of big gains.
Bitcoin Cash (BCH)
In an interview with CNN, Mike Novogratz, founder and CEO of crypto fund Galaxy Digital (OTCMKTS:BRPHF), made a case that a majority of cryptos will fail. “I would bet 75% of cryptos don’t make it” pass the next 10 years, said Novogratz. Per CoinMarketCap, there are over 12,000 cryptos trading across 418 exchanges. It’s not that much of a stretch to assume that the segment will encounter a great consolidation.
But then the question becomes, who will be the survivors? At first, it appeared that Bitcoin Cash — the infamous coin that stemmed from a Bitcoin hard fork — had a chance to disrupt the virtual currency ecosystem for the better. Prior to the hard forking, Bitcoin users debated the best way to resolve the original architecture’s inefficiency in light of the popularity it generated.
Obviously, a consensus could not be reached, resulting in Bitcoin Cash, an infrastructure geared toward speed and efficiency. Given its utility and brand presence so to speak, I’d like to think that BCH is undervalued. Priced at around $620, BCH hasn’t moved much since mid-June of this year. That’s in sharp contrast to so many other cryptos, which have blossomed since then.
Personally, I’m holding onto BCH, hoping for the best. But its inability to move has me doing just that — I’m not acquiring a new position.
Cryptos to Watch: Stellar (XLM)
One of the penny stock equivalents within the virtual currency complex, Stellar has always been attractive as a high-risk, high-reward speculation. Indeed, if you had bought XLM when it was trading for fractions of a penny prior to the great bull market of 2017, you would have been handsomely rewarded — even if you had only put in a modest amount of money into the coin.
Of course, with greater awareness in cryptos overall and in Stellar specifically, the chances for outrageous gains may be somewhat limited. Don’t get me wrong — at a current price of just under 35 cents, XLM could go places thanks to the law of small numbers. Basically, you don’t need as much “energy” to move a low-priced asset.
At the same time, Stellar features a heavily diluted supply base relative to the larger cryptos (so don’t expect XLM to break into Bitcoin territory anytime in your lifespan). As such, the upside potential could be capped.
However, it’s still a popular coin and still ranks among the top 30 cryptos by market cap. Relative to how others performed since mid-June, XLM is underrated. Perhaps, but only with speculation funds, you could throw in a few bucks to see what happens.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, USDT, DOGE, BCH 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.