Following a robust series of bullish trades, virtual currencies dropped, leading to concerns about individual cryptos. According to a CNBC report, the leading digital asset on Friday slipped to its lowest level in more than three weeks. Curiously, the business news outlet claimed that the “reason for the drop was not immediately clear.”
To me, the issue negatively impacting cryptos stems from the age-old concept: Buy the rumor, sell the news.
And what exactly is the news that retail investors should be selling? Mainly, the idea that popular blockchain networks switching over to a more energy-efficient consensus protocol will impart a valuation upside. For instance, a Fortune article declared that such pivots will change cryptos forever.
While changing a consensus mechanism represents a major undergoing, the reality is that it’s difficult to profitably exploit news that everybody else reads. As Jordan Belfort stated in the film The Wolf of Wall Street, “by the time you read about it in The Wall Street Journal, it’s already too late.”
If you want to get ahead and follow those words to live by, here are seven cryptos to watch.
While it’s not yet time to panic on Bitcoin (BTC-USD) or other cryptos, investors must be aware that they’re trading against other humans. Humans have emotions. Under pressure, they may do irrational things. They may also be unpredictable, especially if other important endeavors – like paying off the mortgage – depend on their market performance.
Here’s why I bring up the above topic. If you look at Bitcoin’s blockchain analytics (provided by Coinpaprika.com), you’ll notice that 49% of BTC stakeholders are in the money. On the other hand, 47% are out the money while 4% are at the money. Essentially, we only have a 53-47 split between those who are not losing money on Bitcoin versus those who are.
Significantly, in the prior week, 56% of BTC stakeholders were in the money at a price of $24,737. Put another way, a mere 16% difference in price point leads to dramatic differences in stakeholder profitability. Therefore, should BTC slip below the $20,000 level, you should brace for possibly significant pain.
In recent weeks, enthusiasm for cryptos has lit up because of an event called the Merge. To borrow the Wall Street Journal’s phrasing, the Merge represents the Ethereum (ETH-USD) blockchain’s version of a software upgrade. To make a long story short, the consensus mechanism that rewards miners for performing complex algorithms will undergo a shift. Instead of raw computing power, owning a stake in the underlying blockchain system will yield greater reward probabilities.
My concern regarding the Merge doesn’t just focus on the buy-the-rumor, sell-the-news concept. Instead, I’m worried that ETH will lose a fundamental component of its value. If ETH becomes too easily attainable, it might not justify its generous premium.
Therefore, investors of cryptos must be very careful before wagering on Ethereum right now.
Over the past few weeks, Tether (USDT-USD) put up an impressive performance. Of course, Tether represents the most valuable stablecoin pegged to a fiat currency (typically the U.S. dollar). In May of this year, USDT suffered a crisis of confidence as another, more speculative stablecoin project imploded. Fortunately, cryptos made a gradual recovery. And this dynamic brought USDT back to a 1-to-1 relationship with USD.
However, recent trading has been somewhat shaky. Over the trailing week, Tether declined to $1 from $1.0003. Percentage wise, the decline is small. However, since currency-related trades occur in small unit measurements called pips, the erosion of value isn’t insignificant.
Looking to the future, if the strongest proponents of cryptos – the so-called whales – intend to hold their digital assets in cold storage, then logically, Tether risks losing relevance. Since USDT makes transactions easier, the movement of assets to long-term storage removes the economic incentives for stablecoins. Therefore, I would exercise great caution about putting too much wealth into USDT.
Shifting a little bit from market concerns to the courtroom, XRP (XRP-USD) carries significant clout among cryptos. That’s because the folks behind the digital asset, Ripple Labs, presently are squaring off with the U.S. Securities and Exchange Commission. If you haven’t been following the news, the SEC alleges that Ripple skirted securities laws by issuing XRP. In other words, the SEC regards cryptos like XRP as securities, not virtual currencies.
While blockchain advocates vigorously support Ripple, it’s important for investors to maintain their objectivity. For instance, in July of this year, Ripple appeared to gain momentum when the federal judge overseeing the case slammed the SEC for hypocrisy. Essentially, the court ordered the regulatory agency to produce documents related to William Hinman, a former director within the SEC.
Hinman presents much significance to the case because a speech of his affirmed that XRP did not represent a security. However, the latest rumblings reported by Bloomberg Law appear to show that the matter encountered resistance.
Whether we’re talking about cryptos or stocks, it may be best to avoid wagering on legally contested ideas. You just never know how events will materialize.
For all the talk about Ethereum pivoting to proof of stake, one project has been there and done that. Of course, I am referring to Cardano (ADA-USD). According to its website, Cardano’s staking was the “first to be founded on peer-reviewed research and developed through evidence-based methods.” For right now, however, ADA hasn’t been receiving the rewards for said innovation.
Over the trailing week (from the time of writing), Cardano has plunged nearly 20%. Among the top 10 cryptos by market capitalization, ADA represents one of the worst performers. Unfortunately, a critical fundamental factor may have played a role in the negativity.
According to CryptoBriefing.com, “Cardano stake pool operators have discovered a critical bug in the last version of the blockchain’s client software that creates incompatible forks on the testnet.” Cardano ecosystem developer Adam Dean warned that the testnet was “catastrophically broken.”
To be fair, both Bitcoin and Ethereum are down double digits over the past week, implying broader market weakness. Still, heavy betters in the virtual currency space should take this news as a warning: Cryptos face both market risks and network-related vulnerabilities that are difficult to predict.
EOS (EOS-USD) is one of the only strong performers over the last seven days, up 30%.
According to Coinmarketcap.com, the “EOS Network is an open-source blockchain platform that prioritizes high performance, flexibility, security, and developer experience. As a third-generation blockchain platform powered by the EOS virtual machine, EOS has an extensible WebAssembly engine for deterministic execution of near fee-less transactions.”
Now, the tradable EOS unit represents the ecosystem’s “most scalable, divisible, and programmable digital currency.” Interestingly, the network operates under a delegated proof of stake mechanism where stakeholders have the authority to select node operators.
On the price action front, one factor that makes EOS stand out from many other cryptos is its bullish slant. Per Coinpaprika.com, the coin’s order book shows bids (buy orders) consistently outweigh asks (sell orders) throughout this year.
As for its possible future price trajectory, EOS’ near-term momentum certainly offers intrigue. At the same time, if Bitcoin underperforms, the negativity could eventually capsize smaller coins.
Chiliz (CHZ-USD) is another top recent mover, up 12% over the past 7 days.
According to Coinmarketcap.com, “Chiliz is the leading digital currency for sports and entertainment by the eponymous Malta-based FinTech provider. It operates the blockchain-based sports entertainment platform Socios, which enables users to participate in the governance of their favorite sports brands. Multiple fan tokens by Socios.com are an example of that. For sports clubs and associations, fan tokens offer a way of connecting with their fans and unlocking new revenue streams.”
Intriguingly, Chiliz isn’t all talk. Several big sports clubs, such as FC Barcelona and Manchester City inked partnerships with the Chiliz organization. Essentially, the crypto project helps bring greater connectivity between fans and their favorite clubs.
On the order book side, CHZ features much tighter trades between bulls and bears. Still, it features strong upside momentum recently. Of course, the major drawback is Bitcoin. If the head of the blockchain monarchy falls, it tends to take most other cryptos with it.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, XRP, ADA and EOS. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.