While the Federal Reserve’s efforts to combat historically high inflation is noble on some levels, it’s a nightmare for some of the top cryptos to watch. As borrowing costs rise due to the tightening of monetary policy, the incentivization for commercial growth declines. As Bankrate.com pointed out, that’s problematic for the stock market. However, it’s absolutely brutal for virtual currencies.
Frankly, cryptos represent arguably the purest form of risk-on investment there is. While blockchain enterprises offer incredible opportunities and applications, they don’t generate earnings nor pay out dividends (in the traditional sense). Rather, the blockchain is open source, meaning that anyone can theoretically create their own decentralized network. Therefore, what one pays for an individual crypto comes down to the greater fool theory.
Now, I don’t say this to bash some of the top cryptos to watch. Rather, it’s important that moving forward, investors remain vigilant with digital assets. Rather than assuming the market will swing higher because random voices on the internet said so, market participants must pay close attention to core fundamentals. Below are seven cryptos to watch amid a challenging environment.
The king of cryptos to watch, Bitcoin (BTC-USD) brought the concept of decentralized digital assets to the world. Currently, BTC commands a market capitalization of $371.8 billion. Circumstances have not looked great for Bitcoin, with the asset dipping over 4% in the trailing 24 hours since the early morning session of Nov. 8. Over the past week, BTC also dropped 4% of market value.
For this week, one of the biggest points of distraction centers on the Silk Road controversy. According to a CNBC report, the U.S. Department of Justice announced recently that it seized about $3.36 billion in Bitcoin associated with the illegal online marketplace.
On one hand, the aggressive prosecution of crypto criminals should be encouraged as nefarious activities impugn the blockchain’s noble purposes. But on the other hand, that authorities are able to seize Bitcoin in the first place seems to run counter to the security mechanisms that undergird cryptos. Moving forward, the lack of positive mobility in BTC warrants much caution.
Another major headwind that impacted major cryptos to watch like Ethereum (ETH-USD) (among many others) centers on FTX. According to a Benzinga report, prices of several virtual currencies plunged amid concerns about a possible bankruptcy at the exchange. As a result, several investors began liquidating their positions, which doesn’t help the overall narrative of blockchain-based assets.
Mainly, by liquidating and taking cash, or the blockchain’s equivalent of cash alternatives, this action demonstrates no confidence in the underlying cryptos. When faced with administrative pressures (i.e. bankruptcy at a major exchange) or macroeconomic pressures (i.e. rising borrowing costs), many people seem to take comfort in fiat currencies. So, where are the ones claiming to hold on for dear life (HODL)? It’s under the gun where you find what folks truly believe. With traders rushing to liquidate, you don’t want to play hero with Ethereum. Over the trailing seven days, ETH lost nearly 7% of market value.
As a stablecoin or blockchain asset pegged to the U.S. dollar, Tether (USDT-USD) seemingly offers stability compared to many other cryptos to watch. Certainly, during bullish cycles, Tether offered many conveniences. Rather than constantly converting from fiat to crypto, investors can convert huge chunks of their portfolio in stablecoins like USDT. Then, when opportunities arise, market participants can react instantaneously.
However, under a bearish cycle, this narrative doesn’t pan out so well. Since opportunities are few and far between, it’s better to have your portfolio in hard cash. After all, auditing Tether has been a long and frustrating process. What’s more, the Fed probably has the greatest say about USDT’s viability.
For instance, between June and August of this year, the purchasing power of the dollar increased about 0.3% in magnitude. Depending on Fed policy, this metric could rise much higher. If Tether fails to keep pace, then it’s so much better to keep your money in fiat dollars than digital alternatives, which can possibly evaporate overnight.
USD Coin (USDC-USD)
Another popular stablecoin, USD Coin (USDC-USD) is also pegged to the dollar on a 1:1 basis. “Every unit of this cryptocurrency in circulation is backed up by $1 that is held in reserve, in a mix of cash and short-term U.S. Treasury bonds. The Centre consortium, which is behind this asset, says USDC is issued by regulated financial institutions,” per Coinmarketcap.com.
Relatively speaking, heavy investors of cryptos may want to transfer their stablecoin portfolio to USD Coin for its “safety.” Again, it’s a relative matter. If the smelly stuff hits the proverbial fan, it remains to be seen if USDC stakeholders will be made whole. Considering the bearish cycle of cryptos right now, unnecessarily heavy exposure to stablecoins lack incentivization.
Again, with traders currently liquidating their cryptos over industry sustainability concerns, stablecoins have lost their primary reason for existing: enabling quick and convenient transactions. In addition, should the purchasing power of the dollar rise in the months and possibly years ahead, USDC exposure wouldn’t make much sense.
I mean, who would you really trust? A blockchain project or the federal government of the U.S.?
Representing a class of cryptos called meme coins, Dogecoin (DOGE-USD) sparked a craze. The emphasis here focuses on building community engagement rather than lofty goals such as addressing global hunger. In this manner, DOGE occasionally marches to its own beat. Therefore, it could be intriguing for those seeking digital assets that don’t always correspond with Bitcoin’s fluctuations.
However, even Dogecoin couldn’t avoid the FTX downfall. Per the aforementioned Benzinga article, DOGE saw $17.37 million in liquidations in the trailing hour since Nov. 8, 12:51am ET. Unfortunately, HODL-ing sentiments could not arrest the negative trajectory.
In addition, Dogecoin may face pressure from Elon Musk’s takeover of Twitter. Per the Washington Post, Musk seeks to crack down on scams involving cryptos while also promoting Dogecoin. However, opening the gates of free-speech absolutism also opens the doors to scams and scam-like behaviors.
In other words, Musk may be biting more than he can chew, negatively impacting Dogecoin amid the FTX bankruptcy rumor.
One of the next-generation alternative cryptos (or altcoins), Polygon (MATIC-USD) is the “first well-structured, easy-to-use platform for Ethereum scaling and infrastructure development. Its core component is Polygon SDK, a modular, flexible framework that supports building multiple types of applications,” according to Coinmarketcap.com
Currently, Polygon features a market cap of $9.73 billion. While MATIC lost some value during the past 24 hours, it gained a whopping 28% during the trailing week. As of this writing, this week-long performance represents the second best among all cryptos that Coinmarketcap.com covers.
Enthusiasm centers on Polygon’s network expansion. As well, the blockchain project has earnestly boosted its portfolio of partnerships. According to Cointelegraph.com, Polygon’s partners already include mainstream giants like Disney (NYSE:DIS), Starbucks (NASDAQ:SBUX) and Robinhood (NASDAQ:HOOD).
While undoubtedly attractive, investors should still keep their wits about them. While MATIC stormed out of the gates recently, it’s still down about 54% for the year. Therefore, I wouldn’t get too excited until MATIC crosses decisively over the $1.50 resistance level.
Among the more recent blockchain projects, Toncoin (TON-USD) presently occupies the number 31 spot in terms of market cap. At the moment, it features a market value of just under $2 billion. Recently, Toncoin has been on the move, gaining nearly 6% in the trailing 24 hours. Also, TON jumped almost 12% in the past week, moving against the grain of most other cryptos.
Per Coinmarketcap.com, Toncoin’s mission statement is to facilitate a “next gen network to unite all blockchains and the existing Internet.”“Apart from processing millions of transactions per second, TON blockchain-based ecosystem has all the chances to give rise to a genuine Web3.0 Internet with decentralized storage, anonymous network, DNS [domain name system], instant payments and various decentralized services,” the crypto resource adds.
Since hitting an apparent bottom on June 18, TON gained over 106% of market value. Nevertheless, since the start of the year, TON dropped nearly 56%. For risk-takers, the next upside target is to decisively take out the $2 resistance level.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, USDC and DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.