After a rough month in June where the cryptocurrency sector dropped below the $1 trillion total market capitalization line, contrarian investors finally moved into the arena in the last week. On June 26, the crypto market’s total market capitalization reached $978 billion. It has gone down since then to $901 billion, but its growth in the past week suggests a rally could be possible for cryptos.
Of course, the question on everyone’s mind is whether such a rally is realistic. On one hand, the positive news is that cryptos have found some stability. Generally speaking, since the June 13 session, virtual currencies have collectively traded along the $950 billion market cap line. But the not-so-encouraging news is that the sector must start catalyzing significant moves higher to reassure jittery stakeholders.
It’s important to realize that not everyone who participates in cryptos is an investor committed to holding on for dear life (HODL-ing). Even if they say they will, they might panic out. Believe it or not, people sometimes lie on the internet.
Let’s get right into our analysis of cryptos with sector king Bitcoin (BTC-USD). According to sentiment data compiled by Coinpaprika, BTC market participants are feeling mostly bearish about the asset.
What really intrigues me though is that at the current price, stakeholders making money on Bitcoin stands at 49%. Those out of the money measure 47%, while those at the money (neither gaining nor losing) represent 4% of total participants. While a favorable backdrop for the bulls, you can see why I’m so concerned about BTC and other cryptos.
Basically, at 47% of investors out of the money, we are standing close to the point where even some of the early backers are losing their shirts – or darn close to it. If any more hiccups occur, you can see a panicking out of Bitcoin that can send the price down to $15,000, if not near $10,000.
Bottom line: Please, please be careful.
Interestingly, Ethereum (ETH-USD) offers a picture of contrast to Bitcoin, with Coinpaprika indicating slightly less bearish market sentiment. While anything can change in cryptos, such contradictions are worth investigating.
The composition of profitability among ETH stakeholders is slightly better for the number two crypto by market cap. At the current price, only 36% of stakeholders are in the money, 49% are out of the money, but 15% are at the money. In reality, 49% is quite a lot of people who are losing out on one of the top cryptos.
You’ve got to put yourself in the shoes of institutional investors, especially given that 41% of ETH owners are large stakeholders. Do you believe that they’re the type to HODL? Frankly, these are the entities that will dump out at the first sign of major trouble because they have the most to lose.
Therefore, no matter what your position, don’t get complacent with the idea that Ethereum is at the bottom. Ethereum can easily fall below four digits so watch this space closely.
Personally, I think it’s time to sound the alarm on Tether (USDT-USD) in the genuine interest of public safety. As you may know, the key reason why the now-rebranded Terra Classic (LUNC-USD) failed is that the stablecoin — the term for a crypto pegged to hard currencies like the dollar — to which it was connected lost its peg to the greenback. The sudden loss of confidence sent LUNC to the abyss.
Of course, that hasn’t happened to Tether and other popular stablecoins. Nevertheless, the risk of catastrophe can no longer be ignored, not just for the token itself, but for the people holding it. We forget that as bids and asks buzz about on the screen, the digital gambling often causes irreparable personal and societal harm.
To be clear, I do own some Tether and units of other stablecoins in a speculative trading account that I have. However, you can be certain that I dumped out the vast majority of my holdings in Tether, just because the risk of total loss has become all too real.
Recently, Brad Garlinghouse, CEO of Ripple Labs, which founded the XRP (XRP-USD) cryptocurrency, generated headlines when he stated that he will move his company out of the U.S. should the Securities and Exchange Commission (SEC) win its lawsuit filed against Ripple. As you probably know, the SEC has charged the firm with issuing XRP as an unregistered security.
While I don’t want to get sucked into the granularity of the legal drama, it’s an unusual statement from Garlinghouse, who previously made a series of optimistic declarations. It’s possible that the stress of the courtroom has gotten to him and his team, which might not bode well for XRP.
Outside of the lawsuit, XRP has a much more technically driven challenge ahead of it. Throughout the latter half of 2021, bullish traders piled into XRP, with bids (buy orders) significantly outpacing asks (sell orders) on numerous occasions. Unfortunately, the positive sentiment in the order book has not been enough to change the price trajectory.
Currently, the order book is very tight between bulls and bears, meaning that the next great catalyst could determine XRP’s overall trajectory. Hopefully, it’s a bullish news item but you can never be too sure with cryptos.
Among the popular low-priced cryptos, Cardano (ADA-USD) has never failed in attracting new fans to its cause. Fundamentally, its pioneering work with the proof-of-stake (PoS) protocol make it relevant for advocates of blockchain integration. Nevertheless, the bottom line is the bottom line. Unfortunately, this year has been a rough one for ADA.
Still, the coin’s recent price action has given contrarian investors some optimistic ideas. When it reached 52 cents on June 26, it was up about 10% in three days. It’s nothing earth-shattering, of course. But when you consider the steep losses it and other cryptos have seen recently, 10% up is a massive win. Though it’s always possible that ADA can rise above the muck, you want to be careful here.
Essentially, the order book for Cardano isn’t really enticing. After bids significantly outweighed asks on Sept. 7 of last year, the bears have decisively controlled the market. It’s possible that most investors fired the bulk of their ammo in September and are thus unable to respond today.
Frankly, I’m seeing a move to around 10 cents as one of the biggest risk factors for ADA.
Much celebrated as a potential Ethereum killer, Solana (SOL-USD) generated intense investor interest at a time when the ETH network was struggling due to high transaction fees (called gas). In contrast, Solana presented a safe, secure and incredibly low-cost alternative to blockchain developers. Naturally, many of these folks made the transition to SOL.
The thing is, Solana was priced around $173 at the start of this year. As of this writing, SOL is trading hands a few cents below $34. That’s quite a dip, although it surely has contrarians asking the basic question: Will SOL rise higher from here on out?
It’s a perplexing inquiry because for the week ending June 16, the number of bids totaled $77.3 million, whereas the asks amounted to only $22.9 million. That’s quite a variance.
Personally, I would exercise patience with this one.
Another intriguing name among alternative cryptos, Polkadot (DOT-USD) was also in line to kill Ethereum for much of the same reasons as Solana. Basically, Ethereum got too big for its britches and developers got tired of paying onerous transaction fees. Polkadot offered a viable alternative, allowing superior speed, scale and cost structures.
Unfortunately, there’s a difference between blockchain utility and blockchain market value. Despite its usefulness, the Polkadot coin suffered sharp losses this year. Down roughly 75% against its January opener, though, some contrarians are eyeballing DOT as upside speculation.
Interestingly, Polkadot features some of the tightest trading patterns between bulls and bears. Unlike other cryptos, you don’t frequently see DOT bids overwhelm asks (or vice versa). Instead, the bid-ask volume is largely at parity.
But this circumstance can also lead to frustrations. While bulls attacked the bears in early June, the bears fought back fiercely for the week ending June 16. This tells me that the next great news item will be the trajectory decider.
Seeing as how other cryptos are performing, I’m going to stay on the sidelines.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, XRP and ADA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.