This article is excerpted from Tom Yeung’s Moonshot Investor newsletter. To make sure you don’t miss any of Tom’s potential 100x picks, subscribe to his mailing list here.
Bitcoin Making a Comeback
When my InvestorPlace colleagues Luke Lango and Charlie Shrem recommended Solana (SOL-USD) last week, investors were understandably cautious. Crypto traders were so overleveraged at the time that a -10% sneeze from the Dow Jones Index was enough to send Bitcoin (BTC-USD) down -50% with pneumonia.
But markets seem to have found a cure for the common cold.
On Monday, bullish sentiment sent Bitcoin back above $42,500, triggering a “buy” rating by The Moonshot Investor’s Momentum Master strategy.
Luke and Charlie have also become more broadly bullish. On Friday, the duo published an update in the Crypto Investor Network:
“Overall, we are constructive on the current Bitcoin breakout, and do believe it sets the stage for cryptos — including our altcoins — to outperform in the coming weeks.”
— Crypto Investor Network, February 5
Though the U.S. Federal Reserve could still send cryptocurrencies back to the ICU, Luke and Charlie have a point. Crypto markets are staging a strong comeback, and select altcoins are beckoning.
The Bitcoin Breakout Has Arrived…
I rarely see Luke and Charlie so bullish on a short-term timescale:
“Bitcoin finally broke out of its multi-week downtrend and powered back above $40,000. We believe this breakout is great news for our portfolios, and that it could last for a few weeks.”
Weeks? These crypto savants typically invest for years after carefully analyzing the code and viability of individual projects. So when they say it’s time to trade in the short-term, we ought to listen.
…But Caution Is Still Warranted
Recent investor bullishness has zilch to do with an improved macro outlook. Instead, stock markets have recovered because tech stocks from Amazon (NASDAQ:AMZN) to Snap (NYSE:SNAP) were knocking Q4 earnings out of the park. When it comes to the bigger picture, the outlook remains cloudy: investors still expect five rate rises in 2022 and junk bond spreads are edging upward.
That puts cryptocurrencies in a tight spot. These assets generate no dividends… no earnings… no growth beyond speculative staking. Instead, they’re more like hot air balloons, drifting along with whatever investors think of Fed policy at the time.
That means emotions are now in the driver’s seat when it comes to cryptocurrencies. And that’s where strategies like Momentum Master start to shine.
On Wednesday, venture capital firm Sequoia Capital invested $450 million into Polygon (MATIC-USD) through its Indian unit.
Crypto Investor Network’s readers might have already bought the dip at $1.50. And for those who didn’t buy, yesterday’s brief pullback offers another chance in the $2 range.
Here’s what Luke and Charlie say now:
“We’ve always said that long-term price trajectory of cryptos will be driven by underlying adoption. Polygon’s adoption trends are great, and we expect this crypto will head higher.”
They have a point. Ethereum (ETH-USD) has a scaling issue — a fact that has pushed 7,000 decentralized apps (DApps) onto the Polygon network.
And even the introduction of Ethereum “2.0” still leaves room for solutions like MATIC to thrive:
“With Ethereum creator Vitalik Buterin stating multiple times that the network will need plasma, optimistic rollups and ZK-rollups, if Polygon can execute on its promise to deliver on its list of “coming soons,” it should have no problem finding a place in ETH 2.0, maybe even at its heart.”
— David Feld, Decrypt, Aug. 2021
Bottom line: Momentum Master has a stop-buy on Polygon at $2.10 and a stop-loss at $2.
Gala Games (GALA)
Meanwhile, here’s a coin that isn’t on Luke and Charlie’s radar… not yet anyway.
“Those looking for a bit more adventure could consider Gala,” I wrote back in December. “Its high potential — paired with a sub-$1 price — makes it a coin to follow.”
GALA (GALA-USD) has since delivered on that promise of adventure, dropping 62% through late January before rising 75% again.
Even after that decline, the investing thesis remains the same. Founded by Zynga (NASDAQ:ZNGA) co-founder Eric Schiermeyer, Gala is adding quality to an industry often starved for it. The company is focused on producing high-quality NFT-based games and has recently gained investor interest as a Metaverse play.
Investors, however, need to stick to a trading strategy. The Gala team has since announced a massive $5 billion investment into a relatively unfocused grab-bag of movies, music and theme park NFTs, despite having yet to build a blockbuster game. When a company starts diversifying even before it has a “killer app,” investors will need to sell out the moment sentiment reverses course.
Bottom line: Momentum Master has a current “buy” rating at 33 cents and a stop-loss at 30 cents.
“The SEC has struggled to make a strong case against XRP, particularly given its previous classification of Bitcoin and Ether as ‘non-securities.’ Multiple spokespeople for the SEC have since done an about-face… it underscores the uphill battle the SEC now faces in proving wrongdoing by Ripple Labs.”
— Moonshot Investor, Jan. 6
Momentum traders are loving every moment.
On Wednesday, a Manhattan District Judge sided with the U.S. Securities and Exchange Commission to unseal legal documents relating to Ripple Labs. These memos are now due to be published by Feb. 17 and will reveal how much Ripple’s executives knew about issues over coin offerings.
The revelations will add fuel to XRP’s volatility — a great boon for swing traders. If institutional investors buy in on legal clarity, the move could push prices up further. And if XRP prices fall instead, then swing traders’ stop-loss orders will prevent larger drawdowns.
Bottom line: Momentum Master has a current “buy” on XRP and a stop-loss at 75 cents.
What a Scam Looks Like
When I first introduced meme coin RichQUACK (QUACK-USD) last summer, the hastily created cryptocurrency deserved some eye-rolling:
“RichQuack (QUACK)… deserves a special mention. And not just because I said “dump them” at the end of July. It’s because the day after I said that, they did precisely what you would expect. They fell off the map.”
– The Moonshot Investor, Aug. 12
Those who missed the token’s flop now have another chance:
The new meme coin looked much like you would expect — offering 134.5% APR staking rates, and a vague assurance to “help POOR to become rich.” Its anonymous founders also promise NFTs, a CoinMarketCap Airdrop, a meme token creator and so on.
Squint hard enough and you might be able to see some sense to this. The 14% “tax” on transactions creates an incentive to hold, and stranger projects like Shiba Inu (SHIB-USD) have turned modest investments into fortunes.
But if you’re looking for the red flags of a rug-pull, PoorQUACK has plenty — a prime example of why investors need to take business-case analysis of cryptocurrencies so seriously.
Staying Selective in a Bull Market
I’ve always admired Luke and Charlie for their ability to say “this crypto sucks.” When talking heads on YouTube and Twitter are yelling “buy, buy, buy,” it takes a special someone to find the right cryptos without pooh-poohing the entire industry.
Yet that’s precisely what they’re doing in their Crypto Investor Network newsletter.
And if you’re a serious cryptocurrency investor, I suggest you take a look at their work.
That’s because most of today’s tokens will unfortunately go to zero. Much like the dot-com boom of the 90s (an age where websites masqueraded as working businesses), current-day “cryptomania” supports millions of coins that serve no real purpose.
But some real-world winners have already emerged. And if blockchain enthusiasts have it their way, many more coins will join their ranks.
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On the date of publication, Tom Yeung did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Tom Yeung, CFA, is a registered investment advisor on a mission to bring simplicity to the world of investing.