Cryptocurrencies are soaring to fresh heights again, and those who were on the fence regarding these assets are now likelier than ever to consider jumping onboard. For quite some time, we’ve heard from analysts presenting seemingly ridiculous price targets for many of these cryptos. Certainly, the latest surge in the sector delivers plenty of credibility — and also some concerns.
First, I think both bulls and bears must acknowledge the very real possibility that cryptos can continue to move higher from here. The sector appears stretched, as digital assets in total combine for $2.9 trillion in market capitalization. However, you can never ignore the human element. Talk about the fundamentals all you want, but if someone is willing to buy an asset at a higher price, it will move up.
Otherwise known ungenerously as the greater fool theory, soaring valuations of cryptos inspires FOMO, or the fear of missing out. Seemingly every week, something interesting is happening in the sector. And as discount-focused investors look for a correction, only to be denied with higher prices, the emotions invariably ratchet up. Move in now, or else your favorite cryptos could really get out of hand.
But it’s also helpful to take a step back. The Wall Street Journal, citing information from the Federal Reserve, indicated that “U.S. households added $13.5 trillion in wealth last year.”
However, the article clarified that the “stock market, in turn, became the driver of the household wealth gain, accounting for nearly half the total increase.” While liquid, stocks require at least one transaction to convert to cash, which brings up a key concern about cryptos.
Let’s face it — plenty of home and investment transactions were based on sales of equities, since wages haven’t kept pace with inflation. But what happens if stocks lose their viability based on various economic factors papered over during the novel coronavirus pandemic? A run for the exits in stocks could spark a similar dash in virtual currencies.
Therefore, don’t slack on your due diligence if you’re considering buying these seven red-hot cryptos:
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Binance Coin (CCC:BNB-USD)
- Tether (CCC:USDT-USD)
- Cardano (CCC:ADA-USD)
- Shiba Inu (CCC:SHIB-USD)
- Litecoin (CCC:LTC-USD)
Also, while it may appear we recovered from the Covid-19 crisis, the flow of cheap money has resulted in corporate debt ballooning to $11 trillion. Companies are fiscally vulnerable if we encounter any more headwinds, imposing a possible deflationary roadblock. Investors need to be cognizant of this risk to long-term crypto exposure.
Cryptos: Bitcoin (BTC)
As the original blockchain asset, Bitcoin will likely always be the benchmark for all other cryptos. But recently, BTC made news for setting yet another record, this time crossing over the $68,500 level before encountering some selling pressure. Currently, the coin sits at a price just above $68,000.
While Bitcoin has been the biggest winner for my portfolio — and an asset that has changed my life for the better — I’m also someone who desires the truth, no matter where that road may take me. And the truth of the matter is that I’m concerned about BTC’s sustainability.
That doesn’t mean Bitcoin is guaranteed to correct. I’m just one person among millions with an opinion on the matter. However, the lack of accumulation volume as prices continue to rise presents a contradiction. Typically, you want to see rising volume confirm rising prices.
It’s my speculation — and my speculation alone — that the weak hands (or those who have a serious case of FOMO) are driving up this market. While you can potentially still profit handsomely from BTC, I’d be leery about overextending myself.
The number two crypto by market cap, Ethereum essentially represents the backbone of the blockchain. While Bitcoin originally entered into our consciousness as a peer-to-peer network — most importantly, proving that decentralized assets can transfer globally — Ethereum took blockchain technology and applied frictionless transactions to other areas, such as smart contracts.
As such, it’s not terribly surprising that when BTC hit a new record, Ethereum followed suit. The crypto crossed above the $4,800 level a few times, including today. Still, analysts now view Ethereum at $5,000 as a foregone conclusion, much like they view Bitcoin at $70,000 as an inevitability.
That might be so. With so much interest in cryptos, human psychology takes over. Simply put, metrics like $5,000 or $70,000 — nice, round whole numbers — satisfy our senses.
But beware: Ethereum is also rising without increasing accumulation volume to confirm the bullishness. Again, this tells me the weak hands are the primary drivers — and the weak hands can be shaken out at the first hint of trouble.
Cryptos: Binance Coin (BNB)
One of the new kids on the block, Binance Coin was trading for a little more than a dime at its introduction. At the height of the last great bull run in late 2017 and early 2018, BNB peaked a bit shy of $23. Since then, it’s become a force to be reckoned with, jumping to $676 last spring.
More recently, Binance Coin took some cues from the top two cryptos, reclaiming the $600 level. Currently ranked third among all cryptos based on market cap, the token is associated with Binance. According to CoinMarketCap, the exchange is the largest of its kind in the world based on daily trading volume.
Given its status, you might assume BNB coins could swing higher based on the underlying brand value. However, it’s worth pointing out that NextAdvisor, a partnered resource with Time, has a less-than-encouraging take on Binance’s U.S.-based platform:
“Despite its low fees, we do not recommend Binance.US, especially for beginners. Binance.US doesn’t offer any information about how your investment will be secured, stored, or protected by the firm, unlike other cryptocurrency exchanges.”
I only mention the above as a cautionary tale before you take the plunge on BNB.
Normally, there’s not much of a point in discussing stablecoins like Tether. Constantly pegged to the U.S. dollar, USDT doesn’t lose value in the traditional sense. Rather, it’s a fungible digital asset that you can exchange for “standard” cryptos, making it an invaluable resource for blockchain traders.
You might ask, why not just convert your profits in cryptos to actual greenbacks? Wouldn’t this process be safer? Comparatively, yes, but nowadays, regulatory authorities are on the prowl for such crypto-to-cash conversions. Essentially, once a coin or token from la-la land is sold for real money, the IRS will take a good, hard look at that transaction.
Now, you must absolutely consult a financial and tax advisor — I am neither of those things — to get a clearer picture of what I’m about to describe. But I believe many traders will convert their profits into USDT, thereby actualizing their profits but staying firmly within the blockchain.
While a useful tool — again, please consult a professional for advice — Tether itself has attracted negative attention. Namely, it’s possible that not enough cash reserves exist to back up USDT’s claims, which could have disastrous consequences for cryptos. Definitely watch this space.
Cryptos: Cardano (ADA)
Currently one of the most popular alternative cryptos, Cardano initially entered the blockchain arena with far less fanfare. Back in 2017, ADA was trading hands for about 2 cents.
At the height of the last bull run, Cardano briefly breached the $1 level, which represented incredible profitability from its market debut. Of course, that was an ephemeral joy, as ADA quickly fell again.
Another three years passed before Cardano returned to the dollar menu. Following a remarkable rally that began in late July of this year, ADA challenged the $3 level before succumbing to selling pressure.
From there, its future trajectory became unclear. While other cryptos were showing signs of life, Cardano languishes in a frustrating consolidation pattern.
In the past few days, ADA has finally found momentum, but questions remain. Yes, over the trailing seven days, Cardano swung higher by nearly 10%. But priced at $2.26 at the time of writing, the coin is still within the confines of the sideways consolidation pattern.
Upside is certainly possible due to intense interest and sentiment toward cryptos. But Cardano’s volume levels have really died down since the first half of this year. Therefore, you should be vigilant if you decide to buy ADA.
Shiba Inu (SHIB)
If you ask Shiba Inu proponents why they’re so fascinated with the token, you might receive some fundamental arguments. Yes, believe it or not, such arguments do exist, although their validity is very much open to your interpretation. But one of the biggest catalysts is the supply equation.
To make a long story short, approximately “41% of Shiba Inu’s total supply is burned — meaning those coins are no longer in circulation.” That’s according to a Business Insider article, which profiled everyone’s favorite meme coin.
I’m not complaining. While I don’t own SHIB, it makes for a great conversation piece that keeps me busy.
I used to be a sharp critic of Shiba Inu until I realized its fundamentals honestly don’t matter. I can almost assure you that the majority of folks gambling on this meme coin are not doing so because of its remarkable blockchain architecture. No, they’re thinking someone else will buy it off them at a higher price.
Given the extreme sentiment for cryptos, they’re not necessarily wrong. However, if the lights go off in this sector, beware that the junky stuff falls the fastest.
Cryptos: Litecoin (LTC)
Bitcoin obviously represents the flagship of all cryptos. But its dramatic price increase means it effectively serves as a store of value and form of upside speculation rather than its original purpose: a frictionless payment network. Plus, it’s very difficult to conceptualize buying a cup of coffee for 0.0000746 BTC, or whatever the market rate may be.
That’s where Litecoin and other lower-priced alternative cryptos come into the picture. Originally, LTC was priced at fractions of a penny. Today, it’s a bit higher thanks to a recent surge in momentum that took the coin to around $287. Part of the enthusiasm centers on the possibility that, as some companies begin to accept crypto as payment, other businesses will follow suit.
Personally, I find it difficult to believe such a movement will become a thing. Even if Litecoin is priced well below Bitcoin, on a percentage comparison, LTC tends to be more volatile. So it’s kind of like the Weimar Republic scenario that gold bugs love to wax poetic about, but with cryptos.
Also, will CFOs start signing off on having such wildly swinging assets on their balance sheets? This seems awfully risky for conservative accountants to do. But in the meantime, short-term traders could make a killing off the unrestrained nature of the market.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, ADA 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.