With an avalanche of economic and equities market headwinds upon us, cryptos face the classic good-news, bad-news dilemma. However, armed with clear market data — provided by Coinpaprika.com — blockchain investors can approach the segment with an appropriate battleplan. Above all, it’s important not to give too much credence to social media forums as you want to trade virtual currencies on facts, not emotionalized fiction.
First, let’s get the bad news out of the way. Throughout most of this year so far, proponents of decentralized digital assets have attempted to hold onto the $2 trillion total market capitalization line for all cryptos. At this moment, this stat has dropped alarmingly to $936 billion. And the pain is likely to worsen as the Federal Reserve has indicated it will raise interest rates despite poor consumer sentiment.
But the good news? As the internet meme fans like to say, be greedy when others are fearful. However, it’s vital to adopt these aphorisms wisely — and that means through data. You don’t want to just buy the dips like a fool; after all, being greedy when others are fearful didn’t save Enron.
Here’s how to approach cryptos the smart way.
Let’s not waste any time discussing the underlying project aims of these cryptos and get down to the brass tacks, beginning with almighty Bitcoin (BTC-USD). As I write this, Bitcoin has not only slipped below the critical psychological thresholds of $30,000 and $25,000, it’s now struggling to tread water above $22,000. At this rate, I wouldn’t bother touching BTC because the market fundamentals have drastically shifted.
You can tell that by the order books that Coinpaprika.com provides. My main concern is that on Feb. 2, 2022, Bitcoin saw a record number of bids (buy orders) within 10% of the $41,404 price point to the tune of $308.5 billion. On the other end of the equation, the asks (sell orders) amounted to only $31.2 billion.
It’s important to realize that orders don’t necessarily imply execution. However, since BTC saw sizable bullish volume between January through mid-May of this year, it’s quite possible that the bulls have already expended their ammo.
If so, don’t be too eager to load the boat on BTC until it gets closer to $10,000 — perhaps even lower.
Suffering slightly worse than Bitcoin from this week’s “Black Monday,” Ethereum (ETH-USD) is currently in desperate straits. After struggling to hold the $2,000 level since the first half of May, ETH gradually lost credibility with investors. At time of writing, it’s barely holding onto the $1,200 level. Eventually, the $900 level is calling unless the bulls can mount a massive rally.
Unfortunately, I’m not sure where the ammo for this counterattack will come from. According to Coinpaprika.com’s liquidity indicator, Ethereum enjoyed record bids on Jan. 12, 2022 at around the $3,259 price point, to the tune of $11.7 billion. Interestingly, the asks amounted to $11.7 billion, almost at parity. Still, with instances of significant bullish volume between January and mid-May, the bulls may be gassed.
Frankly, the best way to approach Ethereum in my opinion is to sell any sizable pops. While I am keeping a core position in Ethereum, I have already unloaded some ETH as I believe cash is king in this scenario. As fun as they are, cryptos are too volatile as wealth preservers.
For an ultimate downside target, I’m looking at $500.
Forgive my directness but you need to mitigate your exposure to stablecoins like Tether (USDT-USD) and other related cryptos. To be fair, I understand, appreciate and benefit from decentralized financial (DeFi) applications that enable you to generate double-digit yield on your virtual dollars. However, if those virtual dollars lose their pegging — as has happened recently in the sector — you will suffer catastrophic losses.
Interestingly, Tether’s order book shows that it attracted record bids (going back to June 2019) of $3.78 billion, against an ask volume of $980 million. Since then, the rough average of bids is around the $1 billion level but generally rising. On that basis alone, proponents of cryptos have something to cheer about.
On the other hand, it’s crucial to recognize that cryptos as a concept sprouted in 2009, as the Great Recession was reaching its peak (or its valley?). No one knows how virtual currencies will react going into a recession, not coming out of one. Therefore, it’s probably better to be safe than sorry.
After being a frustrating laggard among the major cryptos throughout this year, it’s perhaps sardonic that, while Cardano (ADA-USD) received no exemption from the pain, it’s one of the least-suffering coins, down 5% over the trailing 24-hour period since the evening of June 13. In contrast, Bitcoin and Ethereum are down 15% and 16%, respectively, over the same frame.
Last year, on Sept. 2, the volume of bids hit a zenith at $69.2 million at around the $2.81 price point. However, asks outbid the bids to the tune of $77.5 million. It has been that kind of a year for Cardano, which needed to keep above the one-dollar mark to stay relevant. Now that it’s in penny-stock territory, investors may have to wait a while before this narrative picks back up again.
The problem is that the volume of bids since Sept. 2 has conspicuously faded, again implying that the bulls have rifled through their magazines and need to reload. However, as prices continue to decline across virtually all cryptos, this inherent value destruction prevents optimistic investors from buying the dips.
In looking at the charts, I must say that 20 cents is not out of the question.
As I’ve mentioned in my other updates for cryptos, XRP (XRP-USD) — or more to the point, its founder — is fighting a massive legal battle with the Securities and Exchange Commission. Today, that issue is a side note. What matters more is that as of this writing, XRP is down 11% in the trailing 24 hours and has hemorrhaged 22% in the trailing week.
However, it must be said that XRP is distinct among the major cryptos. That’s because the volume of bids on June 9 amounted to $109.8 million around the 37-cent level. On the other side of the equation, asks amounted to $66.1 million. This buy order volume is very close to last year’s peak of $114.8 million near the $1.10 price point.
Apparently, XRP investors are more concentrated on the implications of the courtroom drama than they are concerning virtual currency dynamics. While that might be encouraging on one level, it’s important to realize that cryptos tend to trade in sympathy with each other.
I think at minimum, the bears will be targeting 15 cents to 20 cents.
One of the big revelations in cryptos last year, Solana (SOL-USD) at its peak appeared on the cusp of breaking above $260, perhaps on the way to $300. However, the November storm of 2021 abruptly visited the digital asset space and SOL was not exempt from the value destruction. At just under $29 as I write this, Solana basically did a 10X move but in the other direction.
However, I would be remiss not to point out that Solana bulls are mounting a counterattack. Similar to XRP above, Solana is enjoying record volume right now. On June 9, Coinpaprika.com notes that — based on the “Max” view setting — the volume of bids hit $63.5 million near the $35 level. At the same time, asks have amounted to $32 million.
Is this a sign that SOL can disassociate from the bearishness of most other cryptos? While it’s encouraging, I would be careful. Primarily, evidence indicates that young or novice traders have put up all-or-nothing wagers in speculative assets. Therefore, with so much red ink on the sector heat map, there might not be enough residual support for Solana.
Shockingly, I think investors need to brace themselves for the possibility of single-digit prices for SOL.
For what it’s worth, the meme-coin community is very loyal to their investments of choice, which is one factor that you can’t ignore for cryptos like Dogecoin (DOGE-USD). Laugh all you want, data from Coinpaprika.com shows that the volume of bids at time of writing amounts to nearly $23 million, exceeding the ask volume of $17 million. So, proponents apparently are buying the dips.
The thing is, the ultimate dip could be a lot lower. On Nov. 4 of last year, bid volume peaked at just under $34 million near the 27-cent level. At the same time, the countervailing ask volume reached $32.5 million, implying a significant tug of war. Nevertheless, with so many buyers jumping into the pool at around 27 cents, the hefty losses that they’re suffering can’t be ignored, even by hardened loyalists.
I’m going to dive into a deeper analysis next week for cryptos but as a preview, consider that at the present price, 44% of Dogecoin holders are making money, while 49% are losing money. Only 7% are profit-neutral but that could very well change over the next several weeks.
At bare minimum, the ultimate downside target could be three-tenths of a penny.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, ADA, XRP and DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.