After weeks of cryptocurrency investors watching their portfolios absorb a severe haircut, digital assets are mounting a comeback effort at the tail end of the Memorial Day weekend. Still, the question on everyone’s mind is, can we trust this rally? To be sure, the upswing in cryptos is encouraging after much disappointment. However, market participants must also recognize the underlying fundamentals.
And what exactly are the fundamentals for cryptos? Right now, I would argue that the financial capacity, or lack thereof, of the retail investment community carries a disproportionately high influence. According to a recent New York Times article, the federal government spent a total of roughly $5 trillion in coronavirus-related relief packages. Of that amount, $1.8 trillion went to individuals and families.
Breaking down this figure even more, Uncle Sam issued $817 billion in stimulus checks and $678 billion in unemployment benefits. Yet, despite this extraordinary and unprecedented support, total outstanding credit card balances declined from a record $927 billion in the fourth quarter of 2019 to only $841 billion about two years later. This relatively marginal 9.3% improvement suggests one thing: retail investors already blew their windfall.
What does that say about cryptos? Simply put, I’d be careful. However, here are my seven top cryptos to watch as digital assets mount a comeback effort:
Cryptos to Watch: Bitcoin (BTC)
As the benchmark of all cryptos, Bitcoin (BTC-USD) naturally attracts substantial attention. In the evening hours of May 30, BTC is trading just under the $32,000 level, a substantial improvement from prior trades, where it was languishing underneath $30,000 throughout much of the long weekend.
In terms of sentiment, Bitcoin’s latest move is encouraging, not just because it’s pinging in the northward direction, but also due to volume confirmation. At the moment, BTC’s volume is 44,129 units, substantially higher from the subterranean levels seen in the prior two days. However, to confirm that this isn’t just a head fake, BTC’s volume would need to break above the 100,000 mark.
Additionally, the next immediate target would be its 50-day moving average (DMA), which currently stands at just under $35,000. Get past that point and $40,000 represents the next must-have level. But until BTC reaches these price markers, it’s probably best to stay levelheaded about the rally.
The number two virtual currency by market capitalization, Ethereum (ETH-USD) finds itself in a similar situation to Bitcoin, having charged significantly higher over the past 24-hour period — up nearly 10% as I write this. ETH is a bit curious, though, as it is still trading just a hair beneath the psychologically important $2,000 level. Given the near-term momentum, ETH should be able to rise above this price point.
Where it goes from here is a trickier conundrum. Like other rebounding cryptos, ETH is enjoying a conspicuously large volume compared to the last two sessions, with the metric reaching just shy of 400,000 at time of writing. However, compared to prior upswings this year, volume is deflated. Naturally, bullish investors will want this stat to improve robustly.
Once $2,000 is in Ethereum’s rear-view mirror, the next target is $2,500, where its 50 DMA is standing. Magnitude-wise, that is a 25% move, which isn’t that unusual for cryptos. However, with retail investor sentiment reeling from prior losses, this could be a difficult effort.
Cryptos to Watch: Tether (USDT)
Right now, stablecoin Tether (USDT-USD) is either the glue that holds all major cryptos together or is the ticking time bomb that implodes the entire sector. To quickly recap, stablecoins are digital assets pegged to hard currencies, usually the U.S. dollar. Because of this pegging, assets like USDT should maintain as close to a 1:1 ratio with the dollar as possible.
Granted, market dynamics will introduce miniscule blips in either direction. But on May 11, USDT briefly traded hands at 97 cents on the dollar. In other words, if you were quick on the trigger and played with large volumes, you could arbitrage the heck out of the pairing. In my view, that is problematic, as stablecoins were designed for convenient stores of digital wealth, not for speculation.
Interestingly, before the May 11 session, USDT was trading at or above the $1 level. Since the fateful session, it has been trading beneath a buck, implying small cracks in sentiment. For full disclosure, I see a higher risk in holding USDT rather than the equivalent paper, so I mostly switched out.
Despite being embroiled in a lawsuit brought on by the Securities and Exchange Commission, Ripple Labs and its creation, XRP (XRP-USD), has represented the underdog story of the past year. Presumably, catching the unwanted attention of the regulatory agency would spell doom for a speculative venture. However, XRP continues to chug along, inspiring other cryptos.
At the time of writing, the colloquially termed Ripple coin has gained almost 8% in the trailing 24 hours. Though it’s a strong performer, investors should be very careful with XRP. For one thing, the lawsuit may not reach a conclusion until sometime next year. Second, it’s not entirely clear if Ripple — which previously enjoyed legal tailwinds — will win the lawsuit.
However, for those that are resiliently optimistic about digital assets, data from FXstreet.com shows that whales — or high net-worth individuals specifically in the cryptos sphere — have continued to accumulate XRP during the dips. I’m not a huge fan of merely following whales since they have the funds to cover big mistakes, but XRP does look a bit more interesting now.
Cryptos to Watch: Cardano (ADA)
Although Cardano (ADA-USD) is one of the early pioneers of blockchain technology, being the first to forward the proof-of-stake protocol, its price action has been all over the map. In late 2020, ADA was one of the penny stocks of cryptos before accelerating to an unprecedented degree in 2021. At its peak, Cardano coins traded hands for just under $3 a pop.
Since then, the narrative flipped completely. Throughout this year, I emphasized the importance of ADA maintaining a price point above the $1 mark. Unfortunately, Cardano slipped several times before succumbing to consistent selling pressure for most of April and May. But as of this moment, ADA is one of the strongest cryptos, skyrocketing over 19% in the last 24 hours.
Could this be a credible rally? My hesitation is that ADA has jumped up on volume that is not particularly impressive against prior results. Further, big gains in cryptos often lead to sharp corrections. Therefore, you should still be on your guard.
Billed as one of the potential “Ethereum killers,” Solana (SOL-USD) generated intense interest as Ethereum-based transactions became onerously expensive for participating developers. On the other end, Solana offered a viable alternative due to its rapid-fire speed, strong security protocols and far lower transaction-related fees. Unsurprisingly, SOL became one of the top-performing cryptos, transitioning from a single-digit dollar price point in late 2020 to an astounding three-digit level in 2021.
Unfortunately, the wheels started to fall off the wagon in early November of last year. After a sharp rally between March and April, SOL again succumbed to selling pressure. Presently, the coin is exchanging hands under $50. Could this be a discounted opportunity?
Though fundamentally intriguing, Solana is one of the laggards in this upswing, gaining only 2.4% in the trailing 24 hours. Further, from its current price to its 50 DMA stands a 38% gap, which is awfully steep. Speculators could consider nibbling at SOL, though I’d still keep the powder keg dry.
Cryptos to Watch: Monero (XMR)
One of the most controversial names among cryptos, Monero (XMR-USD) has garnered the reputation for being the stereotypical image of what some observers think about when they hear the term blockchain: essentially, a gateway for nefarious activities. To be fair, Monero’s privacy architecture is apparently one of the world’s most secure, garnering the frustration of regulatory agencies like the Internal Revenue Service (IRS).
Still, not all requests for anonymous transactions have to involve illicit or unethical products or services. Instead, online privacy is one of the top priorities for most Americans, according to a Pew Research Center report. Therefore, XMR can accrue demand for legitimate purposes and enterprises.
Interestingly, for those who closely rely on technical analysis, Monero is a very strong performer. With the rally in cryptos, XMR has moved up above its 200 DMA and is currently only down against its 50 DMA by a margin of 2.2%. So, if you’re looking to speculate in virtual currencies right now, have a careful look at XMR.
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.