If the equities market really did bottom recently, then the cryptocurrency sector could be poised to outperform, according to Mike McGlone, an analyst at Bloomberg Intelligence. “There are few more powerful forces in markets than when the stock market drops at high velocity as in the first half. Cryptos are part of that ebbing tide.”
But before you speculate about digital assets, you might want to keep your eye on the Federal Reserve. Recently, the U.S. Bureau of Labor Statistics reported that nonfarm payroll employment had increased by 528,000 in July. That is an outstandingly robust figure. However, Americans’ wages are rising, creating a scenario that the Fed was not hoping for. As a result, the central bank is likely to continue being aggressively hawkish.
Of course, both growth-oriented equities and cryptos have attained soaring valuations because of cheap money. Without the Fed’s punch bowl, however, these assets’ trajectory is questionable.
Also consider that The Hill recently reported that more than 70% of millennials have some sort of non-mortgage debt, with the average millennial owing $117,000. Since cryptos primarily tend to be the realm of the young, prospective traders will want to keep close tabs on the coins’ day-to-day pricing dynamics as interest rates generally continue to rise.
Though data from Google Finance indicates that Bitcoin (BTC-USD) is down 51% in 2022, the currency has recently been making some positive moves. For instance, over the five days that ended in the late evening hours of Aug. 7, BTC had gained 2%. In the month that ended on the same night, the king of cryptos was up 7%.
But where will Bitcoin head next? Unfortunately, BTC’s blockchain analytics (provided courtesy of Coinpaprika.com) provides a mixed picture. On the optimistic front, the proportion of BTC stakeholders who are in the money (i.e. in profitable territory) at a price of $23,293 is 52%, while 5% of Bitcoin owners are at the money (neither profitable nor losing money). Out-of-the-money folks represent 43% of the owners. This data suggests that there is significant tolerance for volatility among Bitcoin owners.
However, the other angle is Bitcoin’s total inflows and outflows over the past seven days. Inflows are just beating out outflows; that may be a sign that many people are poised to become bearish on Bitcoin.
In any event, the Fed’s hawkish approach to monetary policy should make investors cautious about Bitcoin.
Like Bitcoin, Ethereum (ETH-USD) has seen better days. Since the start of this year, ETH has hemorrhaged roughly 55% of its market value. However, Ethereum, the number two digital asset by market capitalization, has also enjoyed positive momentum recently. In the five days that ended on the evening of Aug. 7, ETH was up 6% while in the month leading up to that night, the coin spiked up a very hearty 40%.
Can Ethereum keep this trajectory up, reaching (and breaching) the critical $2,000 level relatively soon? Blockchain analytics provide some interesting clues.
With 56% of Ethereum owners in the money at $1,709, 4% of them are at the money i.e. breaking even. That means 40% of the owners are losing money, on the crypto, while 60% are even or making money on it. This dynamic suggests that many Ethereum investors can hold the line without panicking.
Also, in the week that ended on Aug. 7, there were $5.42 billion of outflows involving Ethereum against $5.22 billion of inflows. While this implies that investors are moving Ethereum from exchanges into cold storage, some investors could be removing dollars and other fiat currencies from exchanges. Therefore, crypto investors should monitor the prices of Ethereum and other cryptos closely.
One of the more interesting developments in cryptos is that Tether (USDT-USD) – a stablecoin – has finally reached parity recently with the underlying greenback. Stablecoins are a type of digital asset whose value is supposed to be pegged to that of the dollar.
For several weeks, USDT was trading slightly below $1, suggesting that many were losing confidence in it. Now that Tether has rebounded, is it time to buy the crypto again?
Before purchasing a large amount of stablecoins, you should note that the outflows of Tether are 8.3% higher than its inflows. This dynamic might mean that investors are removing USDT from exchanges and storing it instead.
However, why would anyone bother storing USDT?
Since investors and speculators of cryptos use stablecoins to facilitate lightning-fast acquisitions that cannot be carried out with traditional currencies, failing to keep stablecoins in exchanges and ready to go defeats much of their purpose. Therefore, I recommend assessing these outflows very carefully.
From this point on, I’m going to focus on alternative cryptos (or altcoins) that have outperformed most other digital assets, beginning with Avalanche (AVAX-USD). According to Coinmarketcap.com, Avalanche is a layer-one blockchain that “functions as a platform for decentralized applications and custom blockchain networks.”
To clarify, “layer one” refers to a base or a main blockchain architecture whereas layer two refers to an overlaying network that lies on top of the underlying blockchain. Notably, Avalanche is one of the so-called Ethereum killers, with an alternative architecture that can function as the backbone of crypto-related projects.
Over the week that ended on Aug. 7, AVAX moved up 17%, making it one of the top performers among cryptos. In addition, Avalanche benefits from the positive framework of its order book. Last quarter, bids or buy orders for Avalanche significantly outweighed its asks or sell orders, suggesting that the crypto’s near-term momentum may be sustainable.
As with other cryptos, though, Avalanche’s owners and potential purchasers of it will want to be cognizant of rising borrowing costs which might tighten further if wage growth continues increasing.
Another high-flying virtual currency, Holo (HOT-USD) has gained 16% over the last week. In the past month, HOT is up approximately 28%. Per Coinmarketcap.com, Holo is a peer-to-peer distributed platform “for hosting decentralized applications built using Holochain, a framework for developing DApps that does not require the use of blockchain technology.”
The website goes on to explain that the “goal of Holo is to serve as a bridge between the broader internet and apps built using Holochain, offering an ecosystem and marketplace in which DApps are easily accessible, as they are hosted on the internet by Holo network participants.”
According to HOT’s order book, there has been significant bullishness towards Holo from investors starting in July, as its bids have dwarfed its asks since then. On Aug. 4, its bids exceeded its asks by a factor of 2.85, implying strong, positive sentiment towards it.
Nevertheless, investors should engage HOT cautiously as the broader monetary framework isn’t necessarily positive for cryptos.
VeChain (VET-USD) is a utilitarian crypto, designed to help make traditional supply chain platforms more efficient through decentralized technologies. While VET was one of the massive winners on a percentage basis back in the spring of 2021, since then, its performance has been problematic.
To be fair, VeChain has garnered significant momentum recently, swinging up nearly 16% over the last week. As well, VET skyrocketed about 33% in the last month. In the previous 24 hours, VeChain happens to be up nearly 3%.
Fundamentally, VET is a versatile, enterprise-grade layer-one blockchain. According to Coinmarketcap.com, “VeChain aims to use distributed governance and Internet of Things (IoT) technologies to create an ecosystem which solves major data hurdles for multiple global industries.”
Though its ambitions are admirable, VET’s order book shows incredibly tight trading patterns. With neither side appearing to have an advantage, traders should expect some choppy price action from VeChain.
Among the many altcoins that enjoyed blistering gains in late 2021, Loopring (LRC-USD) at its peak was trading hands at over $3 per token. However, the explosive rally was unfortunately short-lived for speculators, with the crypto eventually crashing back down to reality.
Still, interest in the token is again climbing. Over the last week, Loopring has gained 12% while in the last month, it’s up 17%. At the time of this writing, LRC has soared over 7% during the last 24 hours.
Fundamentally, Loopring is “an open protocol designed for the building of decentralized crypto exchanges.” Further, Coinmarketcap.com describes Loopring’s purported goal as the fusion o0f “centralized order matching with decentralized on-blockchain order settlement into a hybridized product that will take the best aspects of both centralized and decentralized exchanges.”
Still, before anyone jumps into LRC, you should note that bearish players have taken over its order book. As I write this column, the asks of LRC are nearly seven times its bids . Throughout much of this year, traders have been overwhelmingly bearish on Loopring. Consequently, a short-term approach is likely the most prudent strategy when dealing with it.
On the date of publication, Josh Enomoto held LONG positions in BTC, ETH and USDT. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.