Over the last several days, the biggest ripple in the cryptocurrency sphere has been China’s move to officially make blockchain-derived digital assets illegal. Naturally, both major cryptos and alternative coins and tokens have suffered choppy and volatile trading, leading many investors to wonder about their future tactical and strategic decisions.
Generally speaking, I think it’s wise for those who are already robustly profitable on paper to actualize some, not all of those gains. Because of the wildness of the sector and the immediate, dramatic paradigm shifts that cryptos can impose in a blink of an eye, it’s best to get in a habit of taking profits off the table. However, I realize that I’m probably in the minority among virtual currency advocates.
In short, the China ban on cryptos theoretically opens the door for the U.S. and other countries to ramp up their blockchain mining infrastructure, particularly through renewable energy sources. Several politicians have used this opportunity to take potshots at China for understandable reasons. But in this case, the government presiding over the world’s second-biggest economy is making a decision that could be in its best interest for the long haul.
While I’m no fan of the communist nation, it’s fair to point out that several benefits exist to centralized assets and financial instruments, irrespective of whether they occupy the analog or digital realm. As the China Evergrande (OTCMKTS:EGRNF) fiasco demonstrated, counterparty risk is a serious threat to any contract or transaction. But the cryptos sector would make such dangers commonplace precisely because the rule of law governing centralized transactions is murky at best.
For instance, a blockchain-based smart contract will only confirm who violated its terms. But without both parties submitting to a centralized authority, enforcement of said contract could be impossible. Therefore, I don’t wholly agree with the China ban being an opportunity for western digital-asset-based initiatives. Instead, it’s one piece of evidence that demonstrates the fragile nature of the fundamentals that undergird these and other cryptos.
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Tether (CCC:USDT-USD)
- Dogecoin (CCC:DOGE-USD)
- Solana (CCC:SOL-USD)
- Cosmos (CCC:ATOM-USD)
Throughout this year, advocates of cryptos have romanticized notions such as “HODL-ing” or holding on for dear life. But in the trailing month from Sept. 29, several major blockchain assets are down double digits. That to me confirms the other reality of cryptos: if this market goes sour, you could be seeing red for a long time. Therefore, please approach this sector with an abundance of caution.
Cryptos to Watch: Bitcoin (BTC)
As I write this, Bitcoin is struggling to stay atop the $42,000 level, which if you’re a glass-half-full type, this is encouraging since the benchmark of all cryptos had recently slipped into $41,000 territory. Because we’re talking about digital assets, by the time you read this, you could be seeing $52,000 on the radar. Hopefully, you are seeing this price because that’s where BTC needs to be to convincingly break out of this funk.
What really worries me — and this applies to several other cryptos — is that since Sept. 6, Bitcoin has printed a series of lower highs. From approximately $52,700, BTC next hit a high following a downtrend of roughly $48,600 on Sept. 18. Following another series of volatile sessions, Bitcoin made it up to just under $45,000 on Sept. 24.
On the other end of the scale, you can make the argument that the magnitude of deceleration for this series of lower highs has eased considerably. Thus, it’s possible that the bulls could be reloading at current levels, readying for another swing higher.
However, acquisition (buying) volume has been lower than in prior rallies so the latest moves presently lack credibility.
As the backbone of most blockchain-related projects, Ethereum offers the fundamental counterargument to those who still insist that cryptos are nothing but digital vapor (or similar dismissal). Thanks to this burgeoning network, the team behind Ethereum has essentially created a decentralized economy. In that sense, you could view ETH as incredibly undervalued relative to its longer-term potential.
Now, I don’t want to be a killjoy because I’m a proponent of cryptos, having ridden this story for a long time. But I think there’s a clear difference between being a supporter and being an unquestioning loyalist. I always ask questions, even to the point of challenging my own deep-seated beliefs. Honestly, with Ethereum, we need to have a more inquisitive attitude.
What the China ban has opened is a window, not to necessarily play the role of competitor but to ask deeper questions, such as, is decentralization truly beneficial for humanity? While advocates of cryptos will argue left and right that digital assets foster democratization, I’m not so sure now.
For instance, when you consider the distribution of crypto coins, the wealth gap between decentralized and centralized paradigms isn’t all that different from each other. Thus, if people are buying assets like Ethereum based on fundamental arguments, the “non-distinguishment” factor could be a problem.
Cryptos to Watch: Cardano (ADA)
Overall, Cardano represents one of the biggest success stories among cryptos. As of the time of writing, ADA coins are trading at around $2.12 a pop. On a year-to-date basis, then, the asset — which is famous among the blockchain community for being undergirded by a proof-of-stake protocol — has generated nearly 12X gains.
For those who bought in when Bitcoin was making big moves in December of last year, congratulations! Looking back in hindsight, you couldn’t have asked for a more daring but intellectually credible trade. But fast forward to the present time, you may want to consider taking some — again, not all — profits off the table.
I’m torn because the overall situation doesn’t look too hot. Similar to Bitcoin, Cardano has charted a series of lower highs throughout September. Subsequent attempts to regain the $3 level have looked pensive, which isn’t reassuring in this highly emotional market.
That said, technical analysts often state that declining prices aligned with declining volume presents a bullish backdrop. Basically, this pattern suggests that the weak hands are being flushed out of the market and that might be what’s going on with Cardano in September.
But there’s no guarantees here so taking some profits will be the smarter decision.
Part of the reason why I exited a major chunk of my virtual currency portfolio is the lingering feeling of the unknown. I’ve always expressed admiration for my friends and colleagues who surf because for the thrill of catching the perfect wave, there’s always the non-zero possibility that a great white shark can torpedo upward, searing your surfboard — and you — in half.
Now imagine being on a surfboard 24/7/365 in the Pacific Ocean. Statistically, you’re more likely to get struck by lightning than get eaten by a shark. But if it were to happen, the consequences can be catastrophic. For cryptos, the specter of losing it all through incidents beyond market volatility was something that I could not handle.
That segues into a discussion about Tether, the world’s most popular stablecoin, a crypto asset pegged to the value of the dollar. Stablecoins provide a convenient way to stay in cryptos yet secure paper gains in your favorite coins and tokens. Again, backed by the dollar, you could always exchange USDT for cash.
However, rumors — which Tether the company has denied — that its assets are backed by Evergrande’s commercial paper are worrying. If it’s true (and again, that’s speculation at this point), that could send a massive confidence shock to the entire blockchain ecosystem.
I’m not saying to dump all your USDT, but you’ve got to be smart about your risk exposure.
Cryptos to Watch: Dogecoin (DOGE)
With so much attention paid to Shiba Inu (CCC:SHIB-USD) — and I’m going to apologize to my audience ahead of time, there’s more to come from my end — it’s time to balance the coverage and return to the meme that started it all, Dogecoin.
An apparent favorite of Tesla (NASDAQ:TSLA) CEO Elon Musk, along with a growing cast of colorful personalities, I can understand the appeal of the canine-inspired cryptocurrency. Starting off as a parody of the excesses of crypto mania, Dogecoin gets my vote for the most ironic digital asset. Of course, it has been much more than that for an intrepid few that put serious dollars at risk early on.
While it’s always fun to read stories about Dogecoin millionaires, the big question is, can DOGE repeat this success now that it’s trading for actual pennies (instead of fractions of pennies)? Based on the discipline of technical analysis, Dogecoin has unfortunately become one of the riskiest cryptos to wager on.
Primarily, DOGE is below both its 50- and 200-day moving averages, which are common benchmarks to gauge near-term and longer-term strength, respectively. However, it has been a big risk to bet against these memes so all I can say is trade as per your personal risk tolerance.
If you’re the superstitious type, you might want to stay away from Solana. Featuring the “ticker” symbol SOL, this is also an acronym — under the delightfully helpful urban dictionary — that stands for “ship” outta luck. As in a sinking ship. Overloaded with a certain something.
But if you don’t have time for such nonsense, there might be a slim chance that Solana could break free from the decidedly dark cloud hanging over other cryptos. For one thing, SOL coins are trading comfortably above their 200 DMA and notably above their 50 DMA. While people generally tend to bottom feed in the virtual currency space, in this present environment, there’s a certain comfort in buying into momentum.
Second, acquisition volume has been relatively strong throughout August and September. I’d like to see more of it to be personally comfortable with SOL. But you’re not seeing a steep drop off like you are with other competing blockchain assets.
As with other emerging cryptos, Solana offers a compelling fundamental narrative, its technology bolstering the permissionless innovation of decentralized finance (DeFi) applications. Still, I wouldn’t get too heavily involved in SOL at this rate because of technical weakness throughout the crypto ecosystem.
Cryptos to Watch: Cosmos (ATOM)
Based off an ambitious founding team, Cosmos represents in many ways the conundrum of the virtual currency and blockchain ecosystem. On the surface, Cosmos claims to solve some of the “hardest problems” facing the decentralized economy. Coinmarketcap.com further notes that “It aims to offer an antidote to ‘slow, expensive, unscalable and environmentally harmful’ proof-of-work protocols, like those used by Bitcoin, by offering an ecosystem of connected blockchains.”
In simpler terms, the broader blockchain space is incredibly fragmented, with multiple variants out in decentralized la-la land, but few having the capability of communicating with each other. Cosmos is attempting to change this narrative altogether, fostering a modular infrastructure that can integrate between networks.
It all sounds great until you realize the possibility that some of the volatility that the sector has experienced could be related to the blockchain’s very nature of decentralization. For instance, the aforementioned wealth gap in cryptos demonstrates that, tangibly, nothing has changed economically for participants, whether they stay centralized or go decentralized.
Thus, if Cosmos — or any other so-called Blockchain 3.0 solution — fails to produce substantive improvements, the underlying coin or token may shed market value.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, USDT and DOGE. 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.