With its short-lived run-up in late March and early April, a lot more eyes are on VeChain (VET-USD). It doesn’t appear as if this rally was driven by any news about the token or its native blockchain, VeChainThor.
Search for headlines about it over the past month, and what mostly comes up is technical analysis. It’s likely the recent crypto market rally drove its spike. Now that it’s giving back most of these gains during early-to-mid April, is it time to consider buying VET?
Not so fast. It’s best to avoid this niche token, whose platform seeks to “disrupt” supply chain data management. In the short term, the reason to avoid VET has to do with crypto market conditions. Crypto’s high correlation with stocks could be a negative in the months ahead.
I discussed this in more detail in my recent articles on Bitcoin (BTC-USD) and Ethereum (ETH-USD). If rising interest rates put more pressure on stocks, crypto prices could move lower along with it. The next market-wide drop could be outsized for VET relative to further declines for BTC and ETH.
As for why it’s not a great long-term opportunity, VeChain has limited potential. Its many strategic partnerships have been a big selling point since it first became well-known. However, just because VET has teamed up with major global enterprises, that doesn’t mean it’s on the road to widespread use.
As my InvestorPlace colleague Josh Enomoto argued back in January, it’s up for debate whether businesses have more to gain than lose from using a blockchain in lieu of keeping supply chain data management in-house.
Also, there’s the issue of VeChain having a limited range of use cases. This may limit its upside potential. Take a look at the top cryptos by market capitalization. You’ll see the majority of them are general-use cryptos. If not that, they focus on a much larger segment of the blockchain economy, like decentralized finance (DeFi).
Among similarly-sized cryptos, you are better off going with something like Algorand (ALGO-USD). It’s best to wait for further weakness with ALGO, yet its focus on DeFi may give a greater chance of rising use — and an increase in its coin price.
Don’t read too much into VeChain’s brief price spike. What pushed it higher last month doesn’t appear likely to repeat itself in the near-term. In the long-term, limited upside due to its niche nature makes VeChain not worth the risk.
On the date of publication, Thomas Niel held long positions in Bitcoin and Ethereum. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.