Amid a serious run on banks recently, most investors arguably want to know what this means for the cryptocurrency market, especially as overexposure to cryptos to watch may have contributed to one of the failures. As you’ve probably heard, the Federal Deposit Insurance Corp. (FDIC) recently took over Silicon Valley Bank and Signature Bank. Per TechCrunch, around 30% of the latter institution’s deposits stemmed from the virtual currency industry.
To be fair, it’s not all doom and gloom for cryptos to watch. Notably, over the past week, precious metal prices surged as investors sought safe havens. Therefore, a similar dynamic can play out for blockchain-based digital assets. Fundamentally, an argument exists that federal regulators should have anticipated problems at Silicon Valley Bank before its implosion. This harsh exposure to centralized fiat currencies could give way to their virtual counterparts.
Still, what worries other investors is that no asset class can ignore broader economic shifts. For instance, if the Federal Reserve continues raising interest rates, more financial fissures may erupt. However, if it becomes accommodative, the subsequent inflation may also severely damage the economy. With probably no good decisions available, investors must approach cautiously. Below are the key cryptos to watch.
I’m not going to dictate what you should do with your money. But just to get it out there, I have trimmed my exposure to Bitcoin (BTC-USD), using the recent surge in cryptos to exit at a relatively decent price. Fundamentally, the collapse of SVB and now Signature Bank may spark a ripple effect. In my opinion, I don’t think the Fed can aggressively raise rates without something breaking. Thus, I took the better safe than sorry approach.
Of course, as a free-market enterprise, another side to this argument exists. Primarily, the banking fiasco demonstrates vulnerabilities in centralized monetary systems. Therefore, this may be the moment that Bitcoin was built for, per a Coindesk op-ed. In other words, it’s time to give decentralization a chance. Still, it’s worth pointing out that the opposite of a currently struggling system does not logically guarantee a successful outcome.
Again, I’ll leave the decision up to you. Those who are bullish on Bitcoin will need to see it move to $30,000 to have any chance of continued upside. Otherwise, a drop to $15,000 isn’t out of the question.
As with Bitcoin, I decided to trim my exposure to Ethereum (ETH-USD). And trimming is exactly that – just trimming, not dumping. Of course, having participated in this sector for years, I recognize that cryptos to watch can fly higher for any reason or no reason at all. At the same time, I also know that digital assets can crumble without warning.
What has me spooked about cryptos to watch and other assets is President Joe Biden’s reassurances about regulators stepping into undergird customers’ deposits at SVB and Signature. Don’t get me wrong – it may have been the right move in a sea of bad choices. Still, Biden remarked that “[n]o losses will be borne by the taxpayers.”
I’m afraid I don’t see how that’s possible. With this move, the Fed opened its balance sheet and executed targeted monetary accommodation – an inflationary action. Over time, as we saw in 2022, the American people will always pay for inflation. While rising prices theoretically bolster ETH and other cryptos, they could seriously harm the economy. Still, if you want to take the opposite side of the trade, Ethereum must convincingly breach $2,000 at minimum.
USD Coin (USDC-USD)
While “directional” cryptos like Bitcoin and Ethereum command the bulk of the attention, stablecoins such as USD Coin (USDC-USD) essentially grease the wheels of digital asset transactions. Without them, it’s unlikely that mighty Bitcoin would have reached the grand scales that it did. Through stablecoins, investors can convert their fiat-based funds into virtual currencies, enabling rapid-fire trading.
However, as the Wall Street Journal pointed out, the paper backing these stablecoins ironically resides in centralized institutions. For USD Coin holders, they discovered that Circle Internet Financial operates the underlying stablecoin. More critically, they also found out that Circle had $3.3 billion tied up in Silicon Valley Bank.
Unsurprisingly, then, USDC lost its peg to the U.S. dollar. Now, at the time of writing, the coin is back up to 99.9% of a buck. But at the low point in the past seven days, USDC traded at around 88 cents to the dollar. Here’s the big takeaway for cryptos: pure decentralization may not exist. When you’re talking about moving this much money around, it’s probably impossible for centralized institutions to not be involved.
Although several cryptos enjoyed a significant bump up in the trailing seven days, one that struggled to find momentum was XRP (XRP-USD). Gyrating around the breakeven level, XRP has been rather disappointing. Of course, XRP creator Ripple Labs suffers from the vagaries of the courtroom. A few years ago, the Securities and Exchange Commission (SEC) accused Ripple of skirting securities laws. Consistently, Ripple maintained that XRP should not be treated as a security.
However, what plagued the XRP coin again goes back to the Silicon Valley Bank fiasco. According to Cryptonews.com, Ripple revealed that it had some exposure to the failed financial firm. Because Silicon Valley customers received reassurances that they will be made whole, theoretically, XRP should perform much better. That it’s struggling relative to other cryptos may warrant caution among prospective investors.
Presently, XRP trades below its 50- and 200-day moving averages. To regain upside confidence, the digital asset must at minimum reclaim the 50-cent level. From there, it must reach 75 to 80 cents. Otherwise, it could be a long year.
After initially starting off its journey with a bang, Cardano (ADA-USD) has unfortunately ranked among the more disappointing cryptos. Still, it managed to pop higher in the past 24 hours. In doing so, it gained about 3% over the trailing week. To be sure, it’s progress. However, the issue for ADA centers on the very long ahead to credibility.
At this point, I’m merely keeping a small position in Cardano just in case stuff happens. Admittedly, though, I’m not expecting much to happen before the next big bull run in cryptos. That could be years down the line, if ever. Fundamentally, these smaller digital assets provide a possible gauge of health. In other words, if Bitcoin were to jump higher, you’d expect encouraging chart patterns in the smaller coins and tokens.
However, ADA remains below both its 50 and 200 DMAs. Further, it also trades below the former support line now turned resistance of 40 cents. At a minimum, then, Cardano must clear this hurdle. From there, it must quickly establish a strong presence at 50 cents. However, this seems like a tall ask amid the current economic juncture.
One of the reasons I’m hesitant about the current state of cryptos is the recent lack of net forward progress among the smaller coins and tokens. For instance, Solana (SOL-USD) finds itself trading at around $20.45, below its 50 and 200 DMAs, which stand around $22.47. Moreover, Solana is down almost 2% in the trailing week, missing the enthusiastic rise of other virtual currencies.
To regain credibility and upside momentum, Solana must set up a baseline of support at $30. Unfortunately, SOL this year struggled to get past the $25 resistance line. Unless the bulls expend significant energy, getting to $30 will be a difficult task.
In fairness, the Fed reversing course on its hawkish monetary policy could spark northbound activity for Solana and other cryptos. However, I’m inclined to believe that such an inflationary backdrop would only be a short-term bump. Recall that when inflation skyrocketed last year, virtual currencies collapsed. Further, when layoffs accelerated as consumers tightened their belts, the selloff worsened. If anything, caution should be the order of the day. Nibble on Solana if you must but keep the powder keg dry.
The original alternative cryptocurrency, I haven’t covered Litecoin (LTC-USD) in a long time. However, it’s worth mentioning now because LTC incurred a worrying chart pattern that may have broader implications for other cryptos. Therefore, even if you’re not an LTC stakeholder, you should pay attention.
For one thing, Litecoin suffered badly during the trailing week, shedding nearly 8% of market value. Clearly, it didn’t enjoy the upside momentum that other cryptos did. Second, LTC suffered a sharp drop near the beginning of March, first collapsing below its 50 DMA and then falling to its 200 DMA before bouncing higher. Unfortunately, this action may be a dead-cat bounce.
At the time-of-writing price of $81.58, Litecoin sits sandwiched between the 50 DMA ($91.93) at the top and the 200 DMA ($71.45) at the bottom. Here, the lack of impetus to drive higher despite federal government support of failed financial institutions presents major concerns. Put another way, there’s not much more the government can do, yet LTC remains in a no-man’s-land.
If you’re considering investing in other cryptos, I’d watch Litecoin as a barometer.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDC, XRP, ADA, and LTC. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.