As a longtime fan and supporter of cryptocurrencies, I want nothing more than these “cryptos to watch” rise higher. Unfortunately, we must also accept economic realities, especially with the Federal Reserve committed to its hawkish monetary policy.
In fact, with the unwinding of the money supply, the purchasing power of the U.S. dollar has slightly increased from June of this year. Should the Fed continue to implement its tightening strategies, cryptos and other risk-on assets face significant headwinds.It all comes down to simple economic incentives. Under an inflationary cycle, people had two primary choices with their money: spend it or invest it. Otherwise, holding cash would result in wealth erosion. Under a deflationary cycle, the opposite rings true. People have an incentive to hold cash for essentially risk-free wealth expansion. Ultimately, such a scenario is net negative for cryptos.
Of course, this doesn’t mean that deflationary forces will continue to impact the global markets indefinitely. But for now, cryptos are encountering massive obstacles and investors must respect this dynamic. Still, here are some of the top cryptos to watch.
Legendary fund manager Paul Tudor Jones recently told CNBC that he had a minor position in Bitcoin (BTC-USD). Per Coindesk.com, it wasn’t exactly a ringing endorsement. However, Jones may be right about his pensiveness toward BTC. Earlier, during the mega-rally in cryptos, the fund manager put his weight behind digital assets. Today, it’s a bit of a different story.
Fundamentally, Jones remains concerned about the Fed and its fight against inflation. Like others, his worries center on the central bank’s aggressive approach and its consequences. “If we go into recession, that has really negative consequences for a variety of assets,” said Jones during the CNBC interview.
At time of writing (the late evening of Oct. 10), BTC struggles to hold the $19,000 level. In the trailing 24 hours, Bitcoin lost 2% of market value. Over the trailing week, it shed 2.6%. Given the technical profile of Bitcoin, investors must be prepared for the possibility of a slow ride down to the $10,000 level. About the only event that can break this negativity is a surge above 20K and back toward 30K.
Back in mid-September, Ethereum (ETH-USD) completed one of the most ambitious projects among cryptos. Initially, the ETH network utilized a proof-of-work (PoW) consensus protocol, which valued raw computing power to determine transaction validation rights. However, PoW drained too much energy. Therefore, blockchain developers envisioned a pivot to proof of stake (PoS), which featured a more efficient protocol.
However, no real blueprint existed for the transition, labeled the Merge. So, when the shift to PoS materialized successfully, it symbolized a major victory for both Ethereum and cryptos at large. Unfortunately, it was a fundamental victory. Regarding market valuation, Ethereum has not benefitted from the pivot.
With Ethereum undergirding various blockchain projects, red ink for ETH could easily translate to volatility for other cryptos.
Investors that have excessive wealth tethered to Tether (USDT-USD) should reconsider their exposure. During raging bull markets, the velocity of cryptos makes well-known stablecoins like USDT a top crypto to watch. However, during bear market cycles, the lack of velocity makes this class of digital asset suspect.
“The primary risk of stablecoins is that they aren’t fully backed by the reserve currencies they say they are,” says Anthony Citrano, founder of Acquicent, a marketplace for non-fungible tokens (NFTs). “In an ideal situation, the issuer of the stablecoin has enough reserves of the currencies (in cash or other highly liquid, safe investments) to fully support the stablecoin. Any less than 100 percent and risk is introduced.”
Put another way, when the money flows and cryptos swing higher, no one bothers to check on the fine print. The immediacy, the emotions of the moment tend to cause people to overlook certain warning signs. However, in the lull, you can bet people will start asking questions. I’m not here to say Tether will collapse. But it’s never completely out of the question, thus warranting a cautionary approach.
Although betting on courtroom drama adds greater ambiguities to the mix, so far, the narrative worked out for speculators. Just look at XRP (XRP-USD), one of the top cryptos to watch. In December 2020, the U.S.Securities and Exchange Commission charged Ripple Labs, the originator of XRP, with securities-related violations. Essentially, the regulatory agency claims that Ripple used XRP to sidestep securities laws. However, according to Finbold, XRP gained almost 60% in a month. The reason? Ripple secured some minor wins in the SEC-driven lawsuit. Further, some rumblings suggest that Ripple could engineer a comprehensive legal victory. If so, that would give XRP legal clarity, facilitating an advantage that other cryptos do not own.
Sure enough, over the trailing week, XRP gained 8%. It was the best-performing blockchain asset among those ranked in the top 10 by market capitalization. Recently, though, XRP has been looking questionable, to put it diplomatically. Frankly, XRP needs to hold onto its gains. Otherwise, a trip back down to 30 cents isn’t out of the question.
A peer-to-peer decentralized network, Stellar (XLM-USD) launched its network in 2015. Its main purpose centered on “connecting the world’s financial systems and ensuring a protocol for payment providers and financial institutions,” according to Bitkan.com. Further, the “platform is designed to move financial resources swiftly and reliably at minimal cost. Stellar links people, banks, payment processors and allows users to create, send and trade multiple types of crypto.”
Interestingly, Stellar represented one of the very few cryptos that enjoyed a sizable return over the trailing week. At time of writing, it gained slightly more than 6%. Fundamentally, the platform intrigues because of the low transactional costs involved. Should the blockchain become further integrated in global societies, the Stellar network can facilitate microtransactions.
Still, as practical as the underlying network is, market viability remains the top concern in the near term. In the trailing 24 hours, XLM has been looking rather pensive. Ideally, XLM should start moving toward the 15-cent threshold. Otherwise, a trip down to eight cents could be in the cards.
One of the lesser-known alternative cryptos, Quant (QNT-USD) is another top crypto to watch. Launching in June 2018, the Quant network set off on the goal of “connecting blockchains and networks on a global scale, without reducing the efficiency and interoperability of the network,” per Coinmarketcap.com.
Interestingly, Quant claims that it is “the first project to solve the interoperability problem through the creation of the first blockchain operating system.” Beyond the fundamental scope of the Quant network, the underlying performance of QNT also draws intrigue.
For starters, Quant also represents one of the rare cryptos to have delivered positive results in the trailing week. QNT gained 9%, a robust figure given the underlying circumstances. When assessed from a long-term perspective (and on a logarithmic scale), you can see that QNT generally charted a series of higher highs and higher lows.
While I don’t want to go overboard given the wide-ranging volatility in cryptos, QNT should be on your radar if you’re the speculative type. Ideally, QNT should stay above the $140 level to avoid a retesting of the psychologically important $100 threshold.
Finally, we’ll end this list of cryptos to watch with Elrond (EGLD-USD). Another less-discussed coin outside of the blockchain advocacy crowd, Elrond primarily aims to offer extremely fast transaction speeds via sharding. In succinct terms, sharding represents “breaking” large tables of data into smaller pieces, referred to as shards.
Per Coinmarketcap.com, the Elrond “project describes itself as a technology ecosystem for the new internet, which includes fintech, decentralized finance and the Internet of Things. Its smart contracts execution platform is reportedly capable of 15,000 transactions per second, six-second latency and a $0.001 transaction cost.”
Over the trailing week, EGLD gained 6%, beating out most other cryptos in terms of market performance. Against a wider context, EGLD is somewhat encouraging in that its price point has been relatively stable since June of this year. Whether it can maintain this trajectory will be key.
Personally, I don’t see it falling out of its range anytime soon, which would imply a drop down to $20. Therefore, EGLD is one to put on your radar, though caution remains important.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, XRP, and XLM. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.