With Bitcoin (CCC:BTC-USD) soaring to a new all-time high of just over $66,900 thanks to the much-anticipated news of ProShares Bitcoin Strategy ETF (NYSEARCA:BITO) making its public market debut, the sky seems to be the limit for the original cryptocurrency. Naturally, this bodes well for the undercards — to borrow a boxing term — with many alternative cryptos attractively priced relative to their peak valuations.
Still, should investors take the bait and fork over their hard-earned money into this narrative? While I’m bullish on cryptos in general, I’m also a realist. As a quick aside, it’s one of the reasons people don’t like me that much: I’m always willing to question the status quo, even if it means challenging my own arguments when new knowledge justifies such inquiries.
Although sentiment seems to be sky-high — for instance, note Fundstrat Global Advisors co-founder Tom Lee’s call for $168,000 Bitcoin — this dynamic appears to be an almost perfect setup for a buy-the-rumor, sell-the-news catalyst. That’s basically the concept behind InvestorPlace contributor Wayne Duggan’s analysis, who warned readers to stay away from the Bitcoin futures ETF. When the big event arrives, traders usually cash in and move on. That’s why I’m not too bullish about cryptos now.
Again, don’t get me wrong: I’m a big believer in how cryptos can change people’s lives because I’ve witnessed this materialization firsthand. But the important point to remember is that anything can change lives when you’re talking about highly variable capital markets. The thing about cryptos that we should all be cognizant about is that they can ruin lives too.
Yes, these cryptos are surely enticing thanks to the run up in Bitcoin, but you should also exercise prudence:
- Ethereum (CCC:ETH-USD)
- Cardano (CCC:ADA-USD)
- Binance Coin (CCC:BNB-USD)
- Dogecoin (CCC:DOGE-USD)
- Terra (CCC:LUNA-USD)
- Algorand (CCC:ALGO-USD)
- XRP (CCC:XRP-USD)
While cryptos seem like they’ve reached a milestone, you should also note that, per Duggan’s article, markets are forward looking. Therefore, the heavy hitters are asking, what’s next? If you don’t have a convincing answer for that question, you may want to consider protecting yourself by taking some profits off the table.
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As the number two digital asset by market capitalization and the backbone of several blockchain-related projects, Ethereum should benefit handsomely from the Bitcoin surge — and to be fair, it has. As BTC flew to new highs, Ethereum poked its nose above $4,100, a very solid performance.
It’s not the first time the token has reached this level. Earlier this past spring season, ETH crossed above the $4,100 level, going higher than $4,300 before the bubble burst. The red ink lasted until the back half of July, when Ethereum dipped briefly below $2,000. Apparently, that was the signal for the bulls to jump aboard the sector once again.
Nevertheless, it’s difficult to shake the feeling that something doesn’t seem quite right. During the late July through October rally, acquisition volume has been low relative to the buying volume witnessed during the ramp up in the first half of 2021. As a result, I must recommend a cautious approach since many major downwind cryptos don’t seem to be latching onto BTC’s incredibly robust momentum.
One of the breakout cryptos of 2021, the market priced Cardano at just under 18 cents to ring in the new year. With a price of over $2 as I write this, we’re basically talking about a 12X return. Not bad for one year’s time in the market — and actually, we got more than two months to pad the stats.
At the same time, I believe the current juncture is a make-or-break moment for Cardano. While Bitcoin has soared to unbelievable heights over the past few sessions, ADA is about 29% from its peak. Ideally, technical analysts would like to see this gap narrow substantially before putting too much money at risk.
One factor that is supportive of Cardano is that acquisition volume has been consistently robust throughout this year. This suggests that if momentum moves downwind, the bulls can quickly take ADA back to where it was before: challenging the $3 level.
However, its consolidation pattern — which, to be fair, isn’t unique among alternative cryptos — amid Bitcoin euphoria does give me pause. Again, I would proceed with caution.
Binance Coin (BNB)
Thanks to its association with the Binance ecosystem of decentralized, blockchain-based networks, Binance Coin has been among the cryptos that have largely correlated with the big swing in Bitcoin. It makes sense as greater global awareness of virtual currencies will eventually make their way into Binance the exchange, which happens to be the biggest in the world based on daily trading volume.
Looking at BNB is a great time to bring up the obvious question about an exchange-traded fund geared toward cryptocurrencies: why not just buy the cryptos themselves? When CNBC asked billionaire Mark Cuban if he would buy units of crypto-focused ETFs, he responded, “No, I can buy BTC directly.”
Clearly, legions of crypto advocates share his opinion and why not? Sure, ETFs are great for certain folks, but by participating in an ETF, you must play by the stock market’s rules. With BNB and other cryptos, you can trade when you want, wherever internet access is available.
Nevertheless, with so many people jumping on the same trade, the broader narrative for cryptos seems too good to be true. Therefore, just be ready to get out if things start to get squirrely.
I’ll admit that during the runup of cryptos that began late last year, you wouldn’t find me saying many good things about Dogecoin. Designed as a playful piece of social commentary, Dogecoin exploded upward as a meme coin benchmark. Inexplicably, DOGE gained wider acceptance and credibility, suggesting that people will buy anything if it’s tied to excellent marketing.
A push from Elon Musk certainly doesn’t hurt, either.
However, as the narrative for the major cryptos became far too serious for their own good, the light finally came on. While other blockchain-based initiatives are always rambling about equitable distribution of wealth and democratization of economics, Dogecoin is about having fun and making money along the way.
It’s silly, yes, but at the same time, refreshingly honest. Too often, when certain institutions promise the world, they end up delivering far, far less. When you buy a DOGE — or several thousand of them given its low price point — no one’s under any pretense to save the world.
Again, I find that to be refreshing amid a sea of grandiose claims.
As I implied with my take on Dogecoin above, I’m starting to ignore the underlying claims of cryptos that I’m interested in. Instead, I’m mostly looking at the technicals. If chart patterns appear to justify a position, I might jump in. Otherwise, I’m staying on the sidelines or moving onto something else.
However, I’m going to grant somewhat of an exception to Terra. According to CoinMarketCap, “Terra is a blockchain protocol that uses fiat-pegged stablecoins to power price-stable global payments systems. According to its white paper, Terra combines the price stability and wide adoption of fiat currencies with the censorship-resistance of Bitcoin (BTC) and offers fast and affordable settlements.”
In other words, Terra attempts to bring the best of both worlds into its network. Of course, looking at its chart, LUNA is anything but stable. Between Aug. 17 of this year until the present time, LUNA appears to have charted a broadening wedge pattern. Typically, such patterns indicate chaotic trading and has a bearish implication.
What attracts me to Terra is not so much its investment thesis but what it might entail for the virtual currency market. It’s interesting that despite stability built into LUNA coins, they still managed to print some wild-looking gyrations. Yet again, I find more evidence that the cautionary approach is the smart one.
A relatively obscure digital asset (at least to the general public), Algorand spent most of 2020 stuck in the weeds. However, when the great boom happened in cryptos early this year, Algorand bulls sparked a remarkable rally, taking the coin from around 35 cents to near the $2 mark. Following your typical virtual currency rumblings, ALGO found itself again trading below a buck in July.
However, a second rally saw ALGO briefly break cleanly above the $2 mark. Catapulting the coin was a major news item. While the world remarkable at El Salvador’s move to make Bitcoin legal tender, reports came in that Algorand will undergird the county’s efforts to bolster its blockchain infrastructure.
Not surprisingly, Algorand soared up the ranks, settling as I write this in the number 20 slot based on market cap. But will it improve on this position or fall back down?
Since early September, ALGO appears to have charted a bullish pennant formation, marked by lower highs and higher lows funneling the price action toward an apex. Once reached, market dynamics suggest that ALGO will either breakout or break down.
If it’s going to do the latter, the bulls need to see something positive quickly, as recent sessions have not been encouraging.
Before I risk letting this article become too pensive, it’s important to note that the bubble in cryptos — if you want to call it that — isn’t guaranteed to implode like other bubbles. Indeed, Galaxy Digital CEO Mike Novogratz recently mentioned a factor that separates virtual currencies from other asset classes: the power of community.
Take, for instance, the Securities and Exchange Commission lawsuit against Ripple Labs, the folks behind the XRP cryptocurrency. Basically, the SEC alleges that Ripple sidestepped laws regarding initial public offerings by introducing XRP, which the federal agency regards as a security. My InvestorPlace colleagues have analyzed the legal issue seven ways to Sunday, so I’ll defer to them.
For the purposes of this take, I’m focused on the bigger picture. Despite one of the world’s most powerful regulatory bodies coming down on Ripple, the XRP community has held the line. Well, they did more than that — they’ve kept the price elevated against an event that really should have broken mere mortals.
Thus, it’s fair to point out that with cryptos, we may be dealing with an unprecedented global unified movement. And that’s something you might not want to bet against.