Some of the top cryptos to watch posted a solid start to the year, with the total market capitalization of all digital assets gaining roughly 7%. For comparison’s sake, the benchmark equities index moved up only a bit less than 2%. Therefore, virtual currencies may be on a recovery trek. After plunging about 64% or so of market value in 2022, investors are looking forward to retaking lost ground.
Unfortunately, it’s also possible that investors may need to wait a bit longer for a full-throated recovery. Essentially, cryptos to watch are now tracking the ebb and flow of the S&P 500 index, which presents concerns. Should the Federal Reserve play ball and implement a dovish monetary policy, digital assets can certainly blossom. However, the central bank remains committed to unwinding prior monetary excesses, which doesn’t bode well for commodities overall.
Therefore, arguably the safest approach is to maintain skepticism toward blockchain-derived assets. Yes, getting this sector right can yield life-changing profitability. However, getting it wrong can lead to devastating losses. Vigilance is key when it comes to the cryptos below.
Cryptos to Watch: Bitcoin (BTC-USD)
Recently, Barron’s wrote an article mentioning that several financial institutions have been fleeing Bitcoin (BTC-USD). As the benchmark of all cryptos, no higher-capitalized digital asset exists (as of yet). Therefore, institutions leaving BTC imply a lack of interest in other blockchain coins and tokens. Moreover, the Barron’s article argues, Bitcoin and its ilk need such institutional support.
Per contributor Joe Light, “[t]he problem, in a nutshell, is that for Bitcoin and other digital assets to have any chance of becoming mainstream, banks—with their access to deep sources of liquidity and experience in facilitating payments—will have to be on board. For the time being, they’re running in the opposite direction.”
Fundamentally, I still go back to the juxtaposition between Bitcoin and the real M2 money stock. Basically, as inflationary pressures rise (more money supply), BTC likewise increases in value. When deflationary conditions materialize (less liquidity), Bitcoin tends to fall, like it’s doing now. Unless this narrative somehow changes, investors need to be cautious about BTC and other cryptos.
Cryptos to Watch: Ethereum (ETH-USD)
Similar to other cryptos to watch, Ethereum (ETH-USD) enjoyed a strong start to the new year. Further, in the trailing week, ETH gained 9% of its market value. Presently, Ethereum trades above the $1,300 level, which is undoubtedly significant. Still, for the blockchain asset to be a viable upside prospect, it must regain the $1,400 price point. From there, ETH should start making significant progress toward $2,000.
Failing that, it’s difficult to see why investors would put up with the constant disappointment, particularly when other options exist. To be fair, many retail investors point toward inflation likely to bounce higher again following a lull in rising prices. In turn, such a dynamic would be positive for Ethereum and other cryptos to watch. However, I have trouble accepting this forecast.
Fundamentally, comparing circumstances that occurred 40 or 50 years ago to modern times may be a fool’s errand. That’s because you must consider other elements – demographics, geopolitics, economic growth, etc. – which can easily distort prognosticating accuracy. Again, until the Fed decisively goes into a dovish mode, investors should be careful with ETH.
Cryptos to Watch: Tether (USDT-USD)
With news that mainstream institutions are exiting cryptos, this should be a clear sign to be leery of Tether (USDT-USD). Back when the virtual currency complex was hitting a consistent stream of plateaus, stablecoins like Tether made sense. Rather than always converting fiat currency to the virtual variety, one could convert a chunk of wealth into crypto assets. That way, when an opportunity strikes, you’re ready.
However, in an obviously deflationary market like we’re in right now, stablecoins don’t make much sense. And that’s because cryptos don’t make much sense. After all, blockchain coins and tokens represent pure risk-on assets. They don’t pay dividends or build enterprises. Rather, they move higher because somebody else believes that they’re worth more.
Further, as we’ve seen throughout 2022, cryptos and/or their underlying ecosystems can melt down in the blink of an eye. I’m not going to say that Tether will implode. However, I’m also not going to say that Tether stands no chance of ever imploding. I have no idea. And not knowing means you need to be careful about too much exposure to USDT.
One of the best performers in the past week among cryptos ranked in the top 10 by market cap, BNB (BNB-USD) gained more than 11% of market value. Long a popular coin, BNB undergirds Binance, the world’s biggest crypto exchange based on daily trading volume. Of course, Binance also gained prominence because it wasn’t FTX, the notorious platform that recently imploded.
While Binance dodged a bullet, eventually, any enterprise that handles cryptos may suffer from the incoming fallout. According to a Wired article, no one in the blockchain ecosystem will escape unharmed. Primarily, the crypto companies pressured by the FTX collapse are failing to bail themselves out.
As well, public advocacy groups will continue to point toward FTX and the fiscally lascivious lifestyle that the platform afforded for its founder and close confidants. Yes, BNB and Binance represent their own ecosystem. However, with cryptos suffering a black eye overall, it’s probably not safe to bet everything on BNB. Therefore, a cautious approach is prudent.
According to a report by Decrypt, blockchain investors don’t feel the love for cryptos at the moment. However, they’re not yet giving up on XRP (XRP-USD). If you follow the space, you’ll know that XRP garnered intense interest when the Securities and Exchange Commission filed a lawsuit against its founder, Ripple Labs, for side-skirting securities laws.
Per the aforementioned article, “[a] Monday report by CoinShares said that despite $9.7 million in cash flowing out of digital asset investment products last week, investors plugged $3 million into XRP. These sorts of products are only available to accredited investors, which must meet certain income requirements per the SEC.”
It’s an interesting development. Certainly, if the ongoing legal battle eventually finds XRP is indeed a cryptocurrency and not a security, it will afford legal clarity. That’s a status no other blockchain asset enjoys. Nevertheless, if cryptos themselves fall due to waning investor interest, the lawsuit might become a moot point. Therefore, the same precautionary steps apply here as with other digital assets.
Though no longer ranked among the top 10 by market cap, Solana (SOL-USD) could enjoy a return to the lofty category, particularly if recent momentum continues. In the past week, SOL gained a remarkable 37% of market value.
According to another Decrypt article, Solana developers launched a new meme coin called Bonk (BONK-USD). Per the report, the launch party didn’t last long. However, “BONK still outperformed all major cryptocurrencies over the week.”
Prior to the meltdown of 2022, many blockchain advocates regarded Solana as an Ethereum killer. And for a while, it seemed to have the right stuff fundamentally. Featuring high speed, scalability, security, and low transaction fees, Solana offered a viable alternative to frustrated Ethereum developers, who complained bitterly about rising transaction costs.
Interestingly, FTX founder Sam Bankman-Fried favored Solana. However, Bankman-Fried’s endorsement proved costly, with FTX’s implosion taking SOL down with it. Moving forward, Solana really needs to move up to the $30 range for any discussion about a recovery rally to materialize convincingly. However, with cryptos struggling, waiting a bit on the sidelines may be best.
Shiba Inu (SHIB)
Effectively one of the renegade cryptos, Shiba Inu (SHIB-USD) tends to be a divisive asset: either you love it or you hate it, with few in-betweens. On a personal level, I can appreciate Shiba Inu’s appeal. Frankly, many of the blockchain projects out there became far too annoying and pretentious.
Sure, it’s easy to grandstand and talk about social equity and providing the unbanked with access to the financial system. To be sure, these are noble goals. I just don’t see how a distributed public ledger – basically a glorified spreadsheet – will impact these longstanding social ills.
With Shiba Inu, you don’t have to worry about any of this extracurricular nonsense. Here, the emphasis centers on community and having fun. If you happen to make a huge profit while you’re at it, even better. Nevertheless, I would still exercise extreme caution. Even without the exaggerated sense of importance that clouds other blockchain enterprises, both the gains and the losses that SHIB can impart remain serious business.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, and XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.