When Tom Brady of the New England Patriots engineered a comeback against the Atlanta Falcons in Super Bowl LI, the reversal of fortune was the biggest in the tournament’s history. Indeed, it may have been the biggest comeback in sports history. To be sure, cryptocurrency fans are feeling similarly lucky, with the sector having averted total catastrophe. Still, should you wager on cryptos that this narrative will pan out?
Due to the resurgent bullish momentum — and perhaps a dash of immediacy bias — some justification exists for optimism. For instance, the market capitalization for all cryptos stands at $1.78 trillion at the time of writing, which is up a respectable 6% over the trailing seven-day period. However, even the best of us must eventually hang up the cleats, as Brady recently demonstrated with his retirement announcement.
That’s not to criticize cryptos or discourage anyone from participating in the current discount relative to the sector’s all-time highs. Certainly, it’s possible that digital assets could charge higher from here, just like they did back in July 2021. Back then, it seemed the rally was on its way to an implosion, which would have tracked the historical trend of the sector. Instead, cryptos shot higher.
At the same time, a counterargument is that the paradigm of this year is different from the last. As you know, the Federal Reserve is signaling a hawkish shift from its prior accommodative monetary policy. If so, that would take the air out of risk-on assets — and it doesn’t get any more risk-on than cryptos. Should the Fed be committed to deflating the broader asset bubbles, it could be bad news for the blockchain.
Even with deflated prices, the standard guidance that financial analysts provide is best: if you’re going to play with virtual currencies, only do so with a very small amount of risk capital. And with that, let’s take a look at the below cryptos.
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Solana (CCC:SOL-USD)
- Polkadot (CCC:DOT-USD)
- Litecoin (CCC:LTC-USD)
- Stellar (CCC:XLM-USD)
One final note before we dive in. Although the correction may be seen as a time-capsule opportunity to make up for missing the prior rally in cryptos, don’t automatically assume that history is guaranteed to repeat itself. As I mentioned above, the monetary paradigm has shifted so the volatility may not be as irrational as you might think.
Cryptos to Watch: Bitcoin (BTC)
Over the trailing seven days, Bitcoin is up nearly 5%, which isn’t much to write home about. However, after getting pummeled in 2022 — BTC is down almost 19% on a year-to-date basis through the evening of Feb. 1 — I’m sure investors will take comfort in any bit of good news.
Certainly, if you look at the buzz in social media, a brewing consensus appears to be that the worst of the fallout is behind us. Keep in mind that in the correction that occurred last year, Bitcoin dipped below the $30,000 level before shooting back up to record heights. It’s possible that a similar rebound could materialize, considering that so far, BTC has only dipped to around the $35,000 level.
Still, I would maintain vigilance with cryptos. One of the concerns that I have is that Bitcoin appears to be charting a bearish rising wedge pattern since the Jan. 22 session. What makes the circumstance even more problematic is that volume has been declining while prices have been rising; in other words, volume is failing to confirm the bullish price action.
Since cryptos generally tend to follow Bitcoin, I would be on your guard.
Enjoying a remarkable performance considering the circumstances, Ethereum at time of writing, finds itself up 14% over the trailing seven-day period. Even against the trailing 24 hours, ETH has posted a respectable 3.7%. At the present juncture, the coin finds itself on the cusp of breaking into $2,800 territory, which couldn’t come soon enough.
Just several days ago, Ethereum dropped to $2,400 territory, raising questions about nearer-term viability. So far, it has answered critics with its powerful showing. Nevertheless, there’s much work to be done — and advocates of cryptos should approach ETH with intellectual honesty and clarity.
Yes, the near-term sentiment is encouraging. However, like Bitcoin above, it seems Ethereum is also printing a bearish rising wedge pattern. As well, volume has generally been trending downward as ETH rises in price, setting up a contradiction. If you’re a follower of the technical analysis discipline, you want to see volume confirming higher-moving prices.
In the immediate frame, the $2,800 level is critical as it represented both prior resistance and support. Therefore, Ethereum bulls need to start moving the ball quickly lest sentiment fade in this shaky market.
Cryptos to Watch: Cardano (ADA)
On paper, Cardano could be one of the cryptos that eventually replaces Ethereum as the backbone of blockchain applications. While the network undergirding ETH sparked myriad innovations including the smart contract concept, its popularity resulted in costly inefficiencies. Transaction fees in the network (called gas) have skyrocketed relative to historical averages, posing massive problems for developers.
Not surprisingly, many blockchain advocates are migrating to other networks, including Cardano. One of its claims to fame is its underlying proof-of-stake protocol, which is far more energy efficient than the common proof-of-work protocol. Indeed, Cardano developers pioneered proof of stake, which should give ADA major street cred to become the Ethereum killer.
Unfortunately, the free market has other ideas. While ADA has increased more than 5% in value over the trailing week, it’s one of the more disappointing cryptos. Its technical posture remains worrisome, with the time-of-writing price of $1.10 below the key psychological threshold of $1.15.
On multiple occasions, the $1.15 level has served as a support line for bulls. Presently, this is the longest time that ADA is spending below this line since April of last year. Thus, Cardano needs to start moving quickly to avoid sentiment erosion.
Easily one of the biggest winners in cryptos, Solana was once priced like a literal penny stock when it made its debut. However, 2021 turned this narrative on its head, eventually sending the SOL coin above $250. As a side note, Solana perfectly encapsulates the hope many virtual currency proponents have about the market. Pick the right asset and you could be a millionaire.
However, Solana wasn’t just a byproduct of extreme speculation. Through the development of the world’s fastest blockchain, SOL commands a technical advantage that many of its competitors lack. As a result, the network is able to power the latest innovations in decentralized finance (DeFi), non-fungible tokens (NFTs) and Web 3.0 infrastructure.
Still, high speed usually comes at a cost of higher energy expenditure and thus cost. But Solana basically bills itself as a have-your-cake-and-eat-it-too investment, ensuring permanently low cost and rapid-fire transaction rates. So, why is SOL struggling to hold the $110 level?
As we’re discovering, the underlying fundamental utility of cryptos don’t always ensure that their valuations rise. Right now, Solana needs to concentrate on the $130 level as this is its prior support line.
Cryptos to Watch: Polkadot (DOT)
One of the more celebrated Ethereum killers, around this time last year, Polkadot generated plenty of buzz. It quickly made good on it too, rising from a price of roughly $21 to $48 in May. After a steep correction in cryptos, DOT bounced back higher in late July, ultimately hitting around $54 in November last year.
On an innovation scale, Polkadot seemingly has it all. A defining feature of its network is true interoperability. Per its website, “Polkadot enables cross-blockchain transfers of any type of data or asset, not just tokens. Connecting to Polkadot gives you the ability to interoperate with a wide variety of blockchains in the Polkadot network.” Additionally, the platform is fast, secure and scalable.
It all sounds like a no-brainer until you look at the charts. Over the trailing one-year period, DOT is a little bit below parity. So, if you had put $100 into the coin a year ago, you would have $95.46 — not exactly thrilling stuff there.
But could this be another chance for DOT to rise again? With cryptos, it’s best not to make absolute statements. However, it needs to start rising higher ASAP to avoid panicked selling.
The original altcoin or alternative cryptocurrency, Litecoin was the silver to Bitcoin’s gold. Featuring a lightning-quick architecture (well, relative to BTC’s architecture), Litecoin was able to perform the same peer-to-peer transactions but at a cheaper rate. From a functional perspective, LTC offered a more viable solution than Bitcoin, which gradually transitioned to become a benchmark for cryptos as well as a store of value.
However, with the rise of the blockchain industry, Litecoin has started to lose some relevance. You see, virtual currency mania isn’t just limited to the rip-roaring valuations that the sector has enjoyed over the past year. Rather, the number of cryptos has jumped to astonishing heights. As I write this, there are over 17,000 digital assets available.
Given this enormous competitor base, it’s going to be tough for Litecoin to gain traction. That’s not to say that it isn’t performing well; currently, LTC sits just outside the top 20 of cryptos ranked by market capitalization. Still, unless it garners immediate sentiment that takes it above the $140 level, the cautious approach is best.
Cryptos to Watch: Stellar (XLM)
One of the more exciting cryptos due to the potentiality of the law of small numbers, in the first half of November 2020, Stellar was priced below 10 cents a coin. Later in May 2021, XLM hit 73 cents, effectively generating 10X returns in around a half-year period. Naturally, the psychology of a nominally low price enticed many onlookers to join the fun.
However, XLM subsequently failed to inspire much joy. While Stellar rebounded from the July 2021 doldrums like other cryptos, it didn’t go on to record all-time highs afterward. In fact, it didn’t get anywhere close, which serves as an important lesson. While altcoins tend to track Bitcoin, there’s no guarantee that they mimic BTC precisely.
Worse yet, if you had bought $100 of XLM one year ago, you would have $59.82 today. If that doesn’t sound like an appetizing return as an individual investor, imagine how institutional players feel. That’s one of the biggest risks not only for XLM but for all cryptos: institutional money is awesome on the way up, not so much on the way down.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, LTC 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.