- Although the virtual currency market has been one of the biggest revelations in recent memory, the sector must now prove its true resilience.
- Bitcoin (BTC): As the benchmark for all cryptos, BTC’s recent struggles are worrisome for broader market stability.
- Ethereum (ETH): Falling beneath critical metrics watched by technical analysts, ETH has a challenging road ahead.
- Tether (USDT): The unique circumstances of the new normal present risk-on opportunities for stablecoins like Tether.
- XRP (XRP): Despite a disappointing setback in the legal arena, XRP has attracted bullish sentiment from hardcore believers.
- Solana (SOL): Gaining serious credibility as an Ethereum rival, Solana is on a roll, though its market performance needs to improve.
- Algorand (ALGO): Algorand scored a major sponsorship deal with the upcoming World Cup, though speculators need to be careful.
- Dogecoin (DOGE): Despite obvious implications for Elon Musk’s social media foray, DOGE hasn’t responded as well as proponents would like.
On the surface, cryptocurrencies — particularly the reputable and established varieties — now have an opportunity to demonstrate their true utility and resilience. For years, blockchain advocates have argued that certain coins and tokens have become the new generation’s safe-haven assets, essentially the digital version of gold. However, the recent volatility in the equities sector has also greatly impacted cryptos. So, what gives?
Unfortunately for investors of both digital and analog assets, they face arguably a fundamentally justified bearish cycle. Primarily, the economy may pivot from a growth-centric (or growth-incentivized) framework to one that affords a premium to strong value and stability. In other words, the implosion of Netflix (NASDAQ:NFLX) and its subsequent layoffs represent a microcosm of the end of go-go growth, at least for now. And that has serious implications for cryptos.
To be clear about the last point, it’s not just Netflix that investors need to be concerned about. As a recent report from the New York Times pointed out, a mere handful of tech giants collectively lost $2.2 trillion of market value in the year so far. Young tech enterprises like Robinhood (NASDAQ:HOOD) have announced their own layoffs, which could become a theme. That may hurt cryptos due to lower broader demand.
Still, the main factor that has people plugged into digital assets is the wealth protection angle. With the purchasing power of the dollar rapidly declining, it might still make sense to have some small-to-modest exposure to cryptos. Here are the main ones to watch this week.
Cryptos to Watch: Bitcoin (BTC)
So, let’s avoid the literary fluff and get right into it: Bitcoin (BTC-USD) is struggling and will need to demonstrate substantive upward mobility to stave off concerns of a wider selloff in cryptos. Being the benchmark, if people lose confidence in BTC, that will almost surely catalyze downwind pain for stakeholders of alternative cryptos (altcoins).
In the intermediate term, the main issue is that Bitcoin is conspicuously below its 50-day and 200-day moving averages. Technical analysts regard the two indicators as useful gauges for nearer-term and longer-term market strength, respectively. As I write this, the gap between BTC’s price and its 50 DMA (its first natural upside target) is 9.2%.
The gap between the current price and the 200 DMA is 22.5%, demonstrating how far below Bitcoin is to common understandings of market health. For now, the main positive is that the lack of political will to harken a former Federal Reserve Chair Paul Volcker moment and raise key interest rates above the rate of inflation.
Still, the new normal economy represents a dynamic situation so all eyes will be on Bitcoin this week.
While hardcore Ethereum (ETH-USD) advocates may be waging a war of market supremacy with Bitcoin, the reality is that these two cryptos — at least when it comes to trading sentiment — are more similar than distinct. Like its bigger brother, Ethereum is in trouble, and it needs to demonstrate robust upward mobility to restore confidence.
As well, ETH finds itself locked in a similar technical framework as BTC, with the unit price trading beneath its 50 and 200 DMAs. As I write this, the gap between the current ETH price and its 50 DMA is 8.4%. For the same exercise with the 200 DMA, the gap is nearly 22%. Thus, we’re talking about near-identical metrics of worrying underperformance.
As with Bitcoin, one of the core bullish narratives for Ethereum is the inflation angle. So long as the U.S. Federal Reserve continues on its path of very modest rate hikes, the much more robust rate of inflation may help digital stores of value.
But keep in mind that the institutional ownership that the sector celebrated earlier in the bull run may now be a liability. Simply put, these entities are not interested in holding on for dear life (HODL-ing).
Cryptos to Watch: Tether (USDT)
During the expansion of cryptos throughout 2021, it may have been unthinkable for some to see a stablecoin like Tether (USDT-USD) occupy the third-place spot in terms of market capitalization. Just to bring everyone on the same page, stablecoins are digital assets pegged to a hard currency, typically the U.S. dollar.
Tether’s 1:1 ratio with the greenback allows investors to secure their “paper” profits but without having to convert cryptos into fiat currencies. Cynically, this action reduces the financial footprint of one’s trading behaviors, which leads to speculation and political criticisms that cryptos are instruments of crime. But there’s also a much more palatable (and arguably reasonable explanation): by staying in the virtual currency space, it’s easier for investors to react to new opportunities.
Because of the soaring inflation, though, Tether and cryptos like it offer another enticing angle: passive income. It’s not unusual for blockchain-powered platforms to offer double-digit interest rates in exchange for stablecoin-lending enterprises.
Now, keep in mind that such activities are highly risky and speculative. Additionally, not all stablecoins may be backed by the paper assets they represent. Still, in trying times like these, USDT might become a bright spot.
One of the surprisingly resilient cryptos is XRP (XRP-USD), so much so that I’d be remiss not to discuss it. Over this past weekend, XRP — the controversial digital asset created by Ripple Labs that has been the subject of a Securities and Exchange Commission lawsuit — absorbed a sizable beatdown. As multiple experts noted, the legal proceedings may go into 2023.
I used this description to paint the circumstances. “Like a boxer sensing weakness in the opposition, getting saved by the bell is a benefit to the fighter that would have otherwise lost the match. Presumably, the SEC has more time to collect itself after absorbing critical legal setbacks.” It’s a momentum killer for XRP and Ripple Labs.
However, the coin nevertheless has attracted significant bullish attention. At this moment, the weekend losses have been erased, although it’s way too early to call XRP a winner among cryptos. Apparently, investors are hanging onto the narrative that if Ripple emerges from the SEC lawsuit victorious, XRP will enjoy regulatory clarity and de-facto approval.
Cryptos to Watch: Solana (SOL)
Although cryptos have unfortunately caught the doom-and-gloom bug because of rising recession fears, not every subsegment of the digital assets market is feeling the heat. Indeed, demand for non-fungible tokens (NFTs) remain hot, so much so that it created technical problems for blockchain networks like Solana (SOL-USD) and Ethereum.
Per Blockworks.co, the “two preeminent smart contract platforms each ran into performance problems on Saturday after high traffic demands from NFTs temporarily brought transactions to a standstill.” Moreover, the “Solana blockchain halted — again — and had to be restarted. Ethereum continued unabated, but the cost of blockspace skyrocketed to levels not seen since 2020.”
Of course, suffering technical setbacks isn’t fun for digital innovations. Nevertheless, the positive takeaway is that Solana is proving its mettle as a true Ethereum contender — or Ethereum killer using the crypto parlance.
Still, Solana does have its market performance issues which are not unlike other worrying cryptos. SOL is also trading below its 50 and 200 DMAs, with the gaps to its time-of-writing price being 17% and 63%, respectively. Despite the good news, SOL must regain the $100 level soon.
Not all cryptos have followed the negative implications of the global equities sector, with Algorand (ALGO-USD) providing much needed support for an otherwise embattled market. As I write this, over the last 24 hours, ALGO coins shot up nearly 21%. For comparison, Bitcoin is down half-a-percent during the same period. If you’re thinking that there had to have been a major news item, you’re absolutely correct.
According to the Washington Post, FIFA, the world governing body of soccer, “got a first new American sponsor of the men’s World Cup in 11 years on Monday, signing a deal for this year’s tournament in Qatar with blockchain technology provider Algorand.”
Further, the Post stated that the “deal is also a ‘technical partnership’ to help FIFA develop a digital assets strategy, soccer’s world body said. It could help FIFA market soccer-related non-fungible tokens (NFTs).” So, is it safe to buy ALGO?
While it might be good news for me personally as a stakeholder, the objective reality is that this news item could also be an indicator that cryptos have jumped the shark. Therefore, you should only invest funds that you don’t mind losing.
Cryptos to Watch: Dogecoin (DOGE)
When news broke late last month that famous entrepreneur Elon Musk was going to acquire social media giant Twitter (NYSE:TWTR), assets loosely associated with the iconic figure also enjoyed remarkable demand. Of course, Dogecoin (DOGE-USD) was among the key beneficiaries. For quite some time, Musk has used his influence and public platform to discuss DOGE, making it both a cult and later mainstream favorite.
In theory, Musk’s ownership of Twitter will be very positive for cryptos. You’d also imagine that he would pump up the coins that have intrigued him like Dogecoin. So, how did DOGE fare following the Twitter buyout announcement? Again, the meme coin did well when the news broke but not so much afterward. As I sit here, most of the valuation spike is gone.
Frustratingly, you can interpret this in one of two basic ways. From the optimistic angle, it’s remarkable that Dogecoin is still hanging on despite broader pain in both equities and cryptos. But from the other perspective, that Musk put his weight into DOGE and the virtual currency sector with little to no returns in the long term is a bit worrying.
As with the other cryptos on this list, extreme vigilance and careful money management are your best friends.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, XRP, ALGO and DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.