Transactions move fast in the world of top cryptos to watch, and apparently so do arrest warrants. Per The New York Times, authorities arrested FTX founder Sam Bankman-Fried in the Bahamas after U.S. prosecutors filed criminal charges. What made the incident all the more stunning was that Bankman-Fried was scheduled to appear remotely before Congress to address the implosion of his virtual currency exchange.
According to a person knowledgeable with the matter, Bankman-Friend (known by the initials SBF) will face several charges, including fraud, wire fraud conspiracy, securities fraud, securities fraud conspiracy and money laundering. While the fall from grace makes for macabre headlines, the real story may be the loss of confidence in cryptos. Decentralization of finance also means decentralization of morals – a tough lesson many forcibly swallowed.
Further, policymakers from both sides of the aisle will likely demand increased regulation of cryptos. While some might view such a development as positive for virtual currencies, it could also be a negative. After all, part of the reason why digital assets skyrocket is their pure risk-on profile. The greater the risk, the greater the reward – but also the steeper the consequences should circumstances go awry.
Cryptos to Watch: Bitcoin (BTC-USD)
Following the announcement of SBF’s arrest, Bitcoin (BTC-USD) surprisingly shot higher, moving up to $17,420. Previously, the king of cryptos to watch struggled around the low 17K/high 16K range. It’s possible that contrarians moved in on BTC because of the bad-news-baked-in thesis. Effectively, the big one dropped and therefore, another devastating impact is unlikely.
Still, investors heavily tied to cryptos should approach BTC and all assets carefully. To be fair, Bitcoin is practically synonymous with the underlying blockchain technology. Therefore, BTC may be the last virtual currency to stumble. Nevertheless, the specter of government oversight and restrictive regulation remained problematic before FTX and SBF’s arrest.
Today, you have to imagine that public sentiment turned significantly against cryptos to watch. Further, many analysts see Bitcoin at $8,500 as a likelier outcome than BTC at $34,000. Given all that transpired in the blockchain ecosystem, conservative investors may want to wait for clarity. There may still be some nasty surprises waiting around the corner.
Cryptos to Watch: Ethereum (ETH-USD)
As the number two among all cryptos based on market capitalization, Ethereum (ETH-USD) typically correlates strongly with the Bitcoin price. Similar to the benchmark, ETH popped up recently to above the $1,280 level. About a week ago, the digital asset struggled to maintain its head above the $1,200 threshold. Still, I wouldn’t declare mission accomplished just yet.
Timeline wise, we must remember that a year ago, Ethereum traded just underneath the $4,000 level. Also, during the November peak in cryptos last year, ETH appeared headed for a date with the $5,000 mark. Today, even with the contrarian upside moves, Ethereum trades hands well below $1,500. To generate confidence, it really should be above $2,000.
Therefore, I see the same risks with ETH as I do with BTC, just scaled appropriately for the number-two crypto. In other words, a greater chance likely exists for Ethereum to slip to triple digits than to rise to say $3,000. So, market participants must remain extra vigilant.
Cryptos to Watch: Tether (USDT-USD)
During decisively bullish market cycles, stablecoins like Tether (USDT-USD) bring much value to the table. Technically, they represent digital dollars in that one USDT unit should trade for $1. However, the value stems from the time component of money. Rather than wait for clearinghouses to convert fiat currencies into the desired cryptos, it’s convenient to have stablecoins in hand.
Further, Tether represents an indispensable mechanism for day trading. Basically, the conversion of fiat to cryptos often takes time. However, if traders carry wealth in stablecoins, they can immediately react to opportunities. However, under the current deflationary cycle in the digital asset realm, upside opportunities are few and far between. Plus, they can disappear as soon as they appear.
Finally, it’s not out of the realm of possibility that a similar bank run that capsized FTX could also impact Tether or other stablecoin network. I think it’s okay to have some modest amount of money in USDT (I do). However, excessive exposure may be reckless.
Binance Coin (BNB-USD)
At time of this writing, Binance Coin (BNB-USD) suffered one of the worst trailing-seven-day declines among cryptos listed in the top 10 by market cap. Fundamentally, this circumstance presents significant concerns in my opinion. Per Coinmarketcap.com, BNB represents the virtual currency undergirding the Binance exchange, the world’s largest based on daily trading volume.
More importantly, Binance succeeded where FTX utterly failed. Initially, SBF looked to Binance’s founder Changpeng Zhao for a lifeline. But upon examining the troubled exchange’s books and the intertwined toxicities, Zhao changed his mind. The rest is history.
However, as another New York Times article mentioned, Binance now seeks an opportunity to become the new face of crypto. Although terribly cynical, the narrative should be a net positive for the FTX rival. In turn, BNB should presumably rise.
Instead, BNB dropped over 7% of market value in the trailing week whereas many other cryptos returned positive figures. This contrast against expected outcomes suggests that the FTX fallout may be deeper than observers realize. I would tread carefully.
Generating controversy before the FTX implosion, XRP (XRP-USD) ran afoul of the U.S. Securities and Exchange Commission two years ago. To make a long story short, the regulator accused Ripple Labs – the founding enterprise of the XRP coin – of skirting securities laws. However, Ripple’s defense team argued using several compelling documents that XRP meets the standard as a genuine cryptocurrency.
Currently, significant chatter exists about Ripple settling with the SEC. It appears to be just a rumor and unsubstantiated at that. However, practically anything will get the social media storm going. Still, the main point now centers on regulation and the prospect of legal clarity.
Prior to the FTX mess, a Ripple victory implied a legal precedent for XRP. Theoretically, this would be favorable as no other crypto enjoys such lucidity. However, with policymakers angling for greater consumer protections regarding all cryptos, Ripple could end up with a less-than-meaningful win. Again, I would watch this space very carefully before making any big moves.
Representing one of the next-generation cryptos, Polygon (MATIC-USD) “effectively transforms Ethereum into a full-fledged multi-chain system (aka Internet of Blockchains),” according to Coinmarketcap.com. This multi-chain system is similar to other advanced crypto networks while combining the “advantages of Ethereum’s security, vibrant ecosystem and openness.”
On paper, Polygon sounds like an intriguing advancement regarding blockchain technologies and applications and it is. However, as the FTX fallout negatively impacts the broader virtual currency complex, investors must acknowledge the difference between utility and profitability. Sure, Polygon may be the next great evolution in blockchain ecosystems. However, if no one wants to buy MATIC, the underlying fundamentals won’t matter much.
Further, the connectivity protocol undergirding Polygon (i.e. the internet of blockchains) could create unfortunate associations. In other words, FTX failed in part because the exchange was tied to speculative investment vehicles. Thus, prejudices against intertwining systems could affect MATIC’s public market sentiment. After all, not every participant in cryptos have the same level of education regarding individual digital assets.
In theory, Dogecoin (DOGE-USD) represents one of the more sensible cryptos available. True, DOGE is a meme coin with all the wildness and unpredictability that this label entails. However, you don’t see Dogecoin’s proponents talk about lofty ambitions such as curing dreaded diseases or solving global hunger. Instead, the love of DOGE centers on community and jovial speculation.
So long as participants know exactly what they’re doing and don’t put in more money than they can afford to lose, DOGE certainly justifies its wide appeal. For one thing, it’s really cheap. Currently, each unit trades for around 9 cents. Even better, a robust community undergirds the Dogecoin price. So, if you happen to buy these meme coins right before a big wave, you can make serious cash.
For those that have a technical system that can predict such waves, be my guest and gamble on Dogecoin. However, DOGE’s steep losses over the trailing week – down over 10% — demonstrate a harsh reality. Even if you only seek to have fun, the wealth erosion is very much real.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, XRP and DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.