Last week, the legal drama surrounding FTX founder Sam Bankman-Fried – who’s perhaps better known by his initials SBF – dominated these top cryptos to watch. However, with the former crypto celebrity agreeing to be extradited to the U.S. per a CNN report, the blockchain ecosystem now centers on another person: Federal Reserve Chair Jerome Hayden Powell (JHP).
While the SBF fiasco represented more or less a one-off headwind (albeit an incredibly protracted and severe one), the cloud hanging over cryptos thanks to “JHP” remains an ongoing concern. Essentially, with the central bank committed to attacking historically high inflation through raising the benchmark interest rate, digital assets face an ambiguous future.
To be fair, it’s way too early to pronounce the sector dead on arrival. However, cryptos represent pure risk-on assets. They will likely need support from dovish central bank policies. Unfortunately, such support may be a long ways off. Therefore, it’s time to approach the blockchain ecosystem with extreme care and vigilance.
| BTC-USD | Bitcoin | $16,888.10 |
| ETH-USD | Ethereum | $1,216.05 |
| USDT-USD | Tether | $1.00 |
| BNB-USD | BNB. | $250.60 |
| DOGE-USD | Dogecoin | $0.07 |
| TON-USD | Toncoin | $2.44 |
| XDC-USD | XDC Network | $0.02 |
Cryptos to Watch: Bitcoin (BTC-USD)
Recently, CoinDesk.com mentioned that Bitcoin (BTC-USD) shares a statistical, inverse relationship with the dollar index. It’s not that much of a surprise. If the dollar rises in strength (fewer dollars chasing after more goods), then cryptos will lose relative value. However, if the dollar declines in strength (more dollars chasing after fewer goods), virtual currencies should rise.
For quite some time, the latter dynamic held true. But as Megan Horneman, chief investment officer at Verdence Capital Management, explained, “[t]here is still too much liquidity that needs to be drained.” Horneman further added that “[t]his means that the days of the Fed coming in and cutting rates to zero at any sign of economic weakness are behind us.”
Unfortunately, the draining of liquidity translates to a deflationary action; that is, removing excess dollars from the monetary system. Again, if this materializes, dollars will rise in relative value, impugning the valuation of Bitcoin and other cryptos. Therefore, it’s probably safer to stay on the sidelines for now.
Cryptos to Watch: Ethereum (ETH-USD)
Earlier this year, much attention in the digital asset space focused on Ethereum (ETH-USD) and the event called The Merge. Originally, Ethereum featured a consensus mechanism called proof of work (PoW). However, as cryptos exploded in popularity PoW-integrated blockchains consumed too much energy. As a result, many developers turned to an exponentially more efficient protocol called proof of stake (PoS).
For some time, analysts pondered about the viability of such a transition, seeing how it was unprecedented. Now that the event is behind us, Ethereum now faces the same trails as all other cryptos; namely, Fed policymakers committed to killing inflation at (almost) any cost.
Further, if digital assets become one of the victims of deflationary monetary policies, who in the public would voice criticism? Sure, blockchain proponents would cry foul. However, with the FTX fiasco imposing a black eye on cryptos, sympathy would be a rare commodity. Therefore, it’s probably best to stay on watch with Ethereum instead of going all in.
Cryptos to Watch: Tether (USDT-USD)
Given the deflationary forces that will likely act on the money supply in 2023, Tether (USDT-USD) faces a relevancy crisis. As with other cryptos, it’s too early to call the stablecoin as incurring an existential emergency. However, should the Fed continue to raise rates next year, dollar strength may lift as a consequence. If so, USDT becomes unusually dangerous.
Fundamentally, the point of converting one’s wealth to Tether (or similar stablecoin) centered on convenience. Typically, the conversion of fiat currency to cryptocurrency takes time. Since opportunities in the blockchain markets can materialize and fade in nanoseconds, having funds ready to go in a “crypto-lized” format makes sense.
However, in a decidedly bearish cycle, stablecoins don’t really make much sense. Moreover, what would be the point of holding onto USDT units when you can hold rising strength dollars? Each Federal Reserve note enjoys backing from the U.S. government. What backs Tether? If you don’t know, you might want to consider weaning off your exposure to a more comfortable level.
Cryptos to Watch: BNB (BNB-USD)
For lay observers of cryptos, Bitcoin and Ethereum have become largely household names. However, digital assets like BNB (BNB-USD) – despite amassing significant market capitalization – still produced blank stares among the blockchain uninitiated. Of course, the FTX bankruptcy changed this narrative dramatically. As the virtual currency undergirding the Binance exchange, BNB theoretically should perform quite well.
After all, Binance apparently once stood poised to bail out FTX – until it decided to bail on the embattled platform. By logical deduction, an onlooker might assume that Binance enjoys a much more solid financial profile. In turn, its underlying crypto coin should be resilient against other cryptos, particularly the speculative types.
However, BNB could not escape market volatility. In the trailing week, the coin slipped more than 7% of market value. During the same period, Bitcoin and Ethereum dipped 2% and 5%, respectively. Moving forward, BNB might not receive a reprieve just because of its comparative stability to FTX. For now, cryptos have a credibility crisis they must overcome.
Cryptos to Watch: Dogecoin (DOGE-USD)
Unlike many other cryptos in the space, Dogecoin (DOGE-USD) doesn’t feature a whitepaper with grandiose ambitions of addressing global hunger. Nor does its mission statement focus on eliminating wealth disparities or boosting the economic viability of underdeveloped regions. Indeed, as the New York Times mentioned, Dogecoin started off as a joke.
To be sure, the subsequent mercurial ride that DOGE went on confirmed that the asset is no laughing matter. Further, that the underlying community for the most part doesn’t take itself too seriously represents its main appeal. Frankly, blockchain projects that promise the world tend to fall well short of the mark. It’s just better to have an ecosystem where everybody understands the main ethos – basically, speculation.
That said, the fun-loving nature of DOGE didn’t exempt it from market volatility. Relative to other top-capitalization cryptos, Dogecoin suffered disproportionate pain. It may be better to wait until the new year before making significant trades.
Toncoin (TON-USD)
For the last two cryptos on this list, I’m going to present speculative market ideas that performed well over the past week, beginning with Toncoin (TON-USD). Per Coinmarketcap.com, Toncoin represents a blockchain architecture originally developed to buy, send and store funds. It utilizes a PoW consensus mechanism to facilitate scalability and reliability.
Further, Toncoin’s mission centers on building a “full-fledged ecosystem with decentralized storage, decentralized services, a domain name system (DNS equivalent), an anonymous network, an instant payment platform, and affordable/fast transaction processing.”
Though intriguing, it’s the market performance that matters. Here, TON separates itself from most other cryptos by gaining over 9% of market value during the trailing week. Further, since late July of this year, TON steadily gained market value.
From a technical analysis perspective, it’s possible that Toncoin is in the middle of forming a long-term rounding bottom pattern. However, the segment still presents exceptional risks. Therefore, investors should only gamble a little bit of money (if even that).
XDC Network (XDC-USD)
At time of writing, XDC Network (XDC-USD) owns the distinction of having the best performance over the trailing seven days. It gained 24.5% of market value, putting it conspicuously above the second-place Toncoin. Whether it can hold onto this status for the next week is probably a whole different story.
Unlike TON, it’s arguably difficult to see a discernible technical pattern in XDC. In the trailing year, the coin dropped about 68% of market value. And despite recent upside momentum, in the trailing month, XDC is just a hair above parity. That’s not exactly confidence inspiring, especially with the Fed committed to attacking inflation.
Fundamentally, XDC Network might attract blockchain geeks (and I mean that in a respectful sense, not as a pejorative). Per Coinmarketcap.com, the underlying architecture aims to liquify global trade finance. As with Toncoin above, XDC utilizes an advanced PoS consensus protocol. However, certain functionalities require PoW engagement, thus making the network resilient to spamming.
To be sure, it’s an interesting concept. However, I would still exercise vigilance since the Fed may impose deflationary pressures.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT and DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
