Investors still face a tricky conundrum with cryptocurrencies
- Although cryptos shot up dramatically higher, investors shouldn’t lose their discipline.
- Bitcoin (BTC): Bitcoin has put up head-fakes before.
- Ethereum (ETH): Like BTC, Ethereum buyers must be careful about head-fakes.
- Tether (USDT): Tether and other stablecoins still present viability concerns.
- BNB (BNB): BNB’s latest swing is encouraging but much work remains.
- Cardano (ADA): Cardano also jumped higher but huge obstacles are in the way.
- Filecoin (FIL): Filecoin’s fundamentals didn’t spare FIL volatility.
- ApeCoin (APE): ApeCoin must do a lot more to reestablish credibility.
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Some of the hottest cryptos to watch are pushing higher, proving that the underlying blockchain ecosystem is never truly predictable. Still, investors must still exercise caution. For one thing, we’ve seen this narrative play out before. Back when virtual currencies shot up to then-record highs in late 2017/early 2018, valuations quickly plunged. However, a surge in the spring of 2018 – where digital assets nearly doubled in value – led to optimism which eventually failed.
Following that implosion in 2018, cryptos would go dark for a few years before skyrocketing again in late 2020. Here, the point isn’t to discourage but rather to encourage healthy skepticism. You don’t want to get too emotional and lose your discipline.
Another factor to consider is that the Federal Reserve probably won’t reverse its hawkish monetary policy based on one favorable inflation report. If it goes dovish, it will unwind all the sacrifices made to get to this point. Further, inflation doesn’t just center on the supply of money but its velocity. Since the latter metric increased significantly in 2022, the Fed may still tighten the money supply.
Again, let me stress: you should remain disciplined in your approach to all cryptos.
After floundering for so long around the $16,000 level, Bitcoin (BTC-USD) jumped substantially higher, just like it needed to do. At time of writing, BTC claimed a stake slightly above the 21K price point. To be sure, it’s an encouraging situation, with the coin blowing past both its 50 and 200-day moving averages. However, now the real work begins.
Based on blockchain analytics by Coinpaprika.com, Bitcoin still pings bearish signals. However, at the current price, 59% of holders are making money while only 38% are losing. In my view, this presents a mixed bag. On one hand, optimism begets more optimism. But on the other hand, too much speculation (especially in a risk-off environment) can go catastrophically wrong.
Again, I’m reminded about Bitcoin’s ebb and flow following its 2017 bull run and subsequent implosion. In February and April of 2018, BTC speculators enjoyed two spikes upward, followed by fairly quick trips down. For conservative investors, it’s vital to stay vigilant and not get emotionally hooked on recent developments with cryptos.
The same talking points above applies for Ethereum (ETH-USD). For several months, the price action meandered around the $1,200 level. However, in one fell swoop, Ethereum seemingly made up for lost time, soaring to just under the $1,600 price point. From here, you’d really like to see ETH reach $2,000 and establish a credible base there before moving upward again.
That’s not to undercut ETH’s most recent rally, which admittedly impressed onlookers. Still, just like with Bitcoin, Coinpaprika notes that ETH sends out mostly bearish signals. Presently, among stakeholders at the time-of-writing price, 59% are profitable. Only 38% are not, while the remaining 3% are at the money. Once again, I think this presents a mixed bag. It might attract prospective traders but circumstances can always go awry with cryptos.
Finally, recall that after spiking to a then-record high in Jan. 2018, ETH stumbled into April. It then skyrocketed from there, implying a resurgence. Alas, it wasn’t to be, suggesting that investors must take precautions this time around.
Theoretically, Tether (USDT-USD) should represent one of the “safest” trades in the wild world of cryptos. A stablecoin, USDT is pegged on a one-to-one ratio with the dollar. Therefore, on paper, you shouldn’t be losing money when you convert fiat currencies to Tether.
However, according to Coinpaprika’s blockchain analytics, only 43% among current stakeholders are at the money with USDT. Moreover, 17% are in the money (profitable) while a staggering 40% are out the money. Because of everyday fluctuations, stablecoins can occasionally “beat” their dollar peg, thus facilitating (often microscopic) profits.
Nevertheless, the implosions of once-heavily followed cryptos (even those that were stablecoins) confirms that nothing is really safe. Sure, you can offer the whataboutism that the dollar isn’t safe as well. Fair enough. However, it’s also fair to say that most people will trust the backing of the U.S. government over blockchain-based promises. Thus, even with Tether, you’ve got to be careful.
As with most other cryptos, BNB (BNB-USD) enjoyed a dramatic swing higher in the past few days. In the trailing week from time of writing, BNB managed to gain over 9% in market value. This performance put the coin above both its 50 and 200 DMAs. In doing so, it effectively made up for many months of disappointing price action.
Nevertheless, the hard work remains ahead of BNB. From a technical standpoint, BNB must start moving toward the $400 level to garner investor confidence. While not dismissing its recent spike higher, it’s also not unusual for cryptos to generate such moves (in either direction). However, $400 also symbolizes the bare minimum for BNB. Remember that it rang in 2022 at around $500.
Presently, Coinpaprika’s data shows that BNB’s combined order book favors the bears ($203.67 million in asks versus $202.82 million bids). I’d like to see BNB move convincingly higher and soon. Otherwise, the sideways action presents major concerns.
One of the biggest winners in the recent spike higher in cryptos is Cardano (ADA-USD). Losing favor throughout 2022 for more exciting or trending digital assets, Cardano received much-needed bullish support. In the trailing week, ADA gained about 11% of market value. Significantly, it managed to break up the implications of its long-term downward spiral via moving above its 50 DMA.
That’s major progress so let’s give credit where it’s due. However, what makes ADA interesting compared to other cryptos is that at time of writing, the coin’s price (35 cents) remains below its 200 DMA (40 cents). Conspicuously, in the trailing 24-hour period, ADA dipped about 3%. It’s a sizable loss compared to cryptos ranked in the top 10 by market capitalization.
Moving forward, ADA must gain control of the 40-cent level, where its 200 DMA stands. That’s the bare minimum. Up until April of last year, Cardano traded hands above $1. Unfortunately, it has a long ways to go before reestablishing credibility.
Fundamentally, Filecoin (FIL-USD) offers one of the most sensible platforms. Focused on building a data storage network, the Filecoin project theoretically sparks a symbiotic relationship. Users can go to the platform for their data storage needs. On the other end of the aisle, anybody with extra storage space can contribute it to the system. In return, they receive cryptos (reward tokens).
Unfortunately for FIL stakeholders, the compelling nature of its blockchain enterprise didn’t spare the underlying asset volatility. However, following in line with other cryptos, Filecoin saw a robust swing higher recently. Currently, FIL’s price point ($4.57) ranks well above its 50 DMA ($3.73). However, it too suffers the Cardano problem, slipping beneath its 200 DMA ($5.30).
And like ADA, it’s a bare minimum requirement for FIL to move up to $5.30. Basically, this level represented long-term support during the back half of last year. But FIL started 2022 at roughly $35. Therefore, Filecoin sadly must climb a mountain before it can regain its credibility.
From one of the most sensible platforms in cryptos to the more speculative, ApeCoin (APE-USD) garnered intense interest last year. Back in April, APE jumped above the $26 price point. But just as quickly as it did that, the meme coin cratered. In sharp contrast to many other cryptos, ApeCoin didn’t enjoy a second-half resurgence. Its ebb and flow remained below the $8 level, frustrating new stakeholders.
Recently, though, ApeCoin managed to follow along for the ride. At the start of the new year, APE traded hands for less than four bucks. Right now, the market prices the token at $5. At its peak, it reached just under the $5.50 mark. It’s progress but again, the real work lies ahead. Frankly, it’s hard to imagine that APE and other meme coins will regain their prior momentum anytime soon. Shortly after its introduction, APE began swapping ownership at $14. For ApeCoin to regain investor confidence, it’s vital for it to reach $8. Otherwise, this might be a bull trap.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT and ADA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.