While fading optimism regarding the approval of a benchmark cryptocurrency exchange-traded fund (ETF) soured market sentiment, individual cryptos likely are facing a reality check. Essentially, the idea that risk-on trading can continue bolstering blockchain-derived digital assets is finally encountering skepticism. Moving forward, investors need to be extremely cautious about virtual currencies since they’ve suffered significant technical damage.
First, the Federal Reserve remains an ongoing “culprit” regarding the red ink in cryptos. In fairness, policymakers arguably have little choice but to raise interest rates to prevent inflation from spiraling out of control. After all, somebody has to be the adult in the room when it comes to addressing the monetary and fiscal stimulus programs during the Covid-19 crisis.
However, taking back the punch bowl comes at a severe cost. It’s possible that cryptos are finally baking this framework in. Second, retail investors may not be in a financially strong position to support digital currencies. According to CNN Business, Americans’ credit card debt levels exceeded a record $1 trillion. Tack on the possibilities of additional mass layoffs and you simply have less money to go to cryptos.
Bitcoin (BTC-USD)
When it comes to Bitcoin (BTC-USD), the latest news centers on brewing pessimism toward a spot-based BTC fund. As a recent Cointelegraph article pointed out, the benchmark crypto suffered a $42 million outflow. This dynamic follows many blockchain miners exiting their positions as cryptos suffer a worrying erosion of previously robust demand.
At the moment – which is in the wee hours of the Aug. 22 session – Bitcoin appears to have stabilized in the near term. In the past 24 hours, BTC slipped just a hair below parity. However, that would be little comfort to those who recently initiated a position. In the trailing one-week period, Bitcoin gave up more than 11% of market value.
To be fair, BTC has come back from prior severe declines in March and June of this year. However, the key technical difference is that these volatile incidences occurred on or above BTC’s 200-day moving average. Presently, at just a bit over $26,000, BTC sits below its 200 DMA at $27,346. I cannot emphasize this enough: be extremely careful about wagering on virtual currencies here.
Ethereum (ETH-USD)
Although the discussion about a digital currency ETF presently centers on Bitcoin, Ethereum (ETH-USD) unsurprisingly slipped in sympathy. Per the aforementioned Cointelegraph article, ETH also suffered a recent outflow, in this case to the tune of $9 million. Yeah, it might not be much in the grand scheme of things. Still, it’s a sharp sentiment shift from just a few weeks ago.
Looking at data from Coinmarketcap, Ethereum fell about 1% during the past 24 hours. Again, that’s no comfort to investors who recently acquired a stake. In the past seven days, the number two digital asset by market capitalization slipped almost 10%.
Mimicking the ebb and flow of Bitcoin, Ethereum incurred sharp volatility in May and June of this year before bouncing higher. Again, the issue is that each time, the bottom materialized at or very near ETH’s 200 DMA. Right now, the coin trades at $1,661, well below its 200 DMA of $1,799. While BTC and ETH may be oversold right now based on the relative strength indicator (RSI), I don’t like this setup. It may be better to wait for more information.
Tether (USDT-USD)
Over the many, many weeks that I’ve covered cryptos, I usually take the time to discuss the stablecoin Tether (USDT-USD). Unlike other digital assets, the point of Tether isn’t to extract capital gains (complex arbitrage tactics aside). Rather, USDT provides a means for investors to secure their wealth in cryptocurrencies, thereby avoiding the fiat-to-crypto conversion process.
However, the stability of Tether and the broader blockchain ecosystem depends on Tether the company honoring USDT’s 1:1 peg with the dollar. Should investors lose confidence in this peg, a sort of blockchain bank run may materialize. And it’s not just some theoretical musing either. We’ve seen stablecoin projects fail before. Those incidents probably do not represent the last time.
Of course, this discussion then brings us to Tether. If USDT falls, such an outcome could be utterly devastating for virtual currencies. Further, when USDT loses its perfect peg to the greenback, this raises eyebrows. To be clear, I’m not sounding any kind of alarm. But given that catastrophes do happen, you may want to trim your USDT exposure just in case.
XRP (XRP-USD)
Last month, a federal judge largely ruled in favor of Ripple Labs, the originator of the XRP (XRP-USD) token. At the crux of the decision, the court found that XRP was not a security when sold to the general public. Therefore, Ripple did not violate any securities-related laws, to the chagrin of the U.S. Securities and Exchange Commission (SEC). Subsequently, XRP skyrocketed on the news.
However, the SEC will do SEC things. Presently, the issue for Ripple and the underlying token is that the regulatory agency has appealed the XRP decision. Further, Ripple Chief Technology Officer David Schwartz stated that the SEC is pushing the process on the grounds that the legal case has not yet concluded. Sadly, it’s another distraction for XRP, evaporating most of its initial-decision gains.
On positive is that at 52 cents at time of writing, XRP trades above its 200 DMA, which sits at 50 cents. Still, it’s only a small comfort as volume levels have declined considerably since the legal announcement.
Cardano (ADA-USD)
One of the most popular alternative cryptos or altcoins thanks to its low price point and active community, Cardano (ADA-USD) has incurred some wild trading. While it’s up around 4% since the beginning of this year, ADA hemorrhaged over 43% of market value in the trailing one-year period. Moving forward, it may be do or die for the digital asset.
Even in the past 24 hours when other cryptos have stabilized, Cardano has been comparatively volatile, losing over 3%. In the trailing seven days, ADA slipped nearly 10%. Again, advocates must start decisively supporting Cardano lest it suffer a terrible downcycle.
Looking at the candlesticks, the issue for ADA – as with the other digital currencies – is that it’s below key moving averages. Currently trading hands at 26 cents, it’s below the 50 DMA (30 cents) and 200 DMA (34 cents). Frankly, ADA must hold here because not much horizontal support exists until we get to around 16 cents.
Solana (SOL-USD)
An advanced blockchain network, Solana (SOL-USD) – and more specifically its underlying token – enjoyed stratospheric success throughout 2021 when cryptos blossomed to record valuations. However, Solana was so much more than just empty speculation. Specifically, the project forwarded the concept of proof of history (PoH), a consensus mechanism that proves an event materialized at a specific point in time.
Fundamentally, PoH protocols substantially reduces the time required to reach consensus for transactional verification. Sadly, though, when the crypto meltdown occurred in late 2021/early 2022, Solana became one of the biggest victims. Slipping from its three-digit price to its low two-digit price, SOL has struggled for traction.
In the past 24 hours, SOL declined by almost 3%. And in the trailing week, it’s down about 16%. Moving forward, the bulls need to decisively push Solana higher. However, it’s a tricky setup right now because SOL is failing to move past its 200 DMA. Given the precarious nature, it’s possible that without immediate support, Solana could slip below the $20 level.
Dogecoin (DOGE-USD)
The famous – or infamous, depending on your perspective – meme coin, Dogecoin (DOGE-USD) cuts a somewhat controversial profile among cryptos. Basically, you’re either part of the DOGE movement or you couldn’t care less about the asset. Arguably few in-betweens exist. That said, what started off as a joke has become an internet culture sensation, sparking its own derivative memes. For that, I suppose Dogecoin is a success.
Unfortunately, this renegade framework of DOGE failed to spare it volatility. In the past 24 hours, the speculative digital asset printed a decline of nearly 2%. Over the trailing seven days, Dogecoin incurred a loss approaching 16%. So far this year, data from Google Finance notes that DOGE fell approximately 10%.
Like many other cryptos, Dogecoin needs to start moving higher to restore confidence and credibility. Unfortunately, it has a tough road ahead. Right now, DOGE trades hands at 6.3 cents. However, its 50 DMA comes in at 7.1 cents and its 200 DMA stands at 7.5 cents. Based on wider economic woes, investors may want to wait for additional information.
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.
