Since forums discussing cryptos are often analogous to a multi-level marketing rally, any move down can risk harsh and instant contempt. It is the nature of the animal. However, as major fundamental changes negatively impact digital assets, it can be helpful to assess the sector using a practical framework.
By and large, deflationary forces dominate risk-on markets. Just look at the actions of the US Federal Reserve, which consistently raise interest rates to combat inflation. In turn, the central bank managed to stem the erosion of the dollar’s purchasing power. This does not bode well for cryptos.
As a far-reaching statement, investors should approach cryptos with caution. No, I’m not a doom and gloom. I’m just being realistic, and I suppose you should be too. Below are seven cryptos.
Bitcoin (BTC USD)
Although fans of cryptos may argue that Bitcoin (BTC USD) is poised for an impending comeback, investors might want to brace themselves for the less-optimistic possibility. Instead of swinging higher, it’s not entirely out of the question that BTC could steadily lose ground. If this is the case, it poses challenges for other blockchain-based assets.
For the time being, experts in this field see the rising dollar strength as a short-term headwind for Bitcoin and cryptos. Per Barrons“The strength of the dollar has plagued the digital currency world and the US dollar index continued to strengthen on Monday [Oct. 3]rising to 112.20.”
To be fair, not all analysts are bearish on cryptos. Should the greenback turn south again, BTC can fly higher, according to Charlie Erith, CEO of ByteTree Asset Management.
Still, the five-year BTC chart suggests bullish traders may have to wait a while longer. Keep in mind that after the late 2017 rally, it took a few years for cryptos to surge significantly higher.
Ethereum (ETH USD)
mid September, ether (ETH USD) has completed its most intense project to date in an initiative called The Merge. Ethereum attracted a lot of interest as it transitioned from its original Proof-of-Work (PoW) consensus mechanism to Proof of Stake (PoS). Should the network make the transition, some people argued, the ETH blockchain would become much faster and more secure. Thus, the added benefit could drive ETH prices higher.
So far, however, this story has not worked out. Other cryptos also showed disappointing price action, leading to major question marks over its near-term viability. To be fair, technical analysts have recently stepped in and noted that a jump to $1,730 could be on the cards if ETH can hold its support line. From there, a return to $2,000 (and hopefully beyond) could occur.
Of course, investors need to do their own due diligence. However, based on the five-year chart, I don’t see a very likely upside move in the near-term. First and foremost, it looks like ETH printed a head-and-shoulders pattern between May 2021 and April 2022. If so, it could be an extended winter for Ethereum.
when i watch tether (USDT USD) and what could be on the horizon, I can’t help but think of the financial crisis in Lebanon. Corresponding Reuters, the embattled nation suffered severe economic turmoil. In response, citizens took to the streets demanding banks give them their money. Due to the catastrophic developments, some Lebanese bankers called for capital control laws.
Basically the correlation between what we see in Lebanon and what could With Tether, a lack of trust happens. If the Lebanese people had confidence in their country’s monetary and economic infrastructure, bank runs would be unnecessary. However, due to a lack of trust, people naturally want their money in their hands.
While I refuse to say whether Tether, a stablecoin pegged 1:1 to the dollar, will collapse (because it is an unknown circumstance), too many incidents have happened for anyone to be satisfied to hold significant assets in USDT.
I’m not going to tell you what to do with your money. All I can say is please be careful with all cryptos.
Ethereum Classic (ETC USD)
For those who are new to the world of cryptos, you may not realize that the Ethereum you know and love represents the second iteration of the innovative blockchain. Originally there was only one Ethereum. Unfortunately, the original network was hacked, so the developers weren’t sure how to proceed. Those who wanted a reset opted for a hard fork into the current Ethereum chain. In return, the original chain received the label Ethereum classic (ETC USD).
What could be fundamentally intriguing for ETC is that since Ethereum 2.0 has moved to a PoS consensus mechanism, the original chain is characterized by a commitment to a PoW protocol. With no plans to move to PoS, Ethereum Classic rewards meritocracy over stake size. That means anyone who wants to get a higher probability of mining-related rewards simply has to purchase more processing power.
While this framework makes for a tempting speculative case, realistically investors should also brace for a long winter. Just like after ETC’s late 2017 rally, Ethereum Classic might take some time to fully correct downside toxicities before bouncing back up.
XRP (XRP USD)
One of the most intriguing storylines affecting cryptos is the lawsuit surrounding them XRP (XRP USD). Specifically, the US Securities and Exchange Commission claimed that XRP is a founder Ripple Labs used the digital asset to circumvent securities laws. Since the lawsuit was filed, XRP has traded wildly as traders have essentially bet on what might happen next.
Interestingly, I-Remit, a partner of Ripple, issued an official statement noting that when using XRP, it never viewed the asset as collateral but as a “tool for fast, cost-effective, cross-border transfers.” Whether such a statement will shift the needle positively for XRP — and Ripple Labs — remains to be seen.
In general, courtroom dynamics are difficult to predict. Instead, potential investors should consult XRP’s long-term chart. Here the pattern is similar to other cryptos. A massive jump to the upside followed by a gradual disappearance in market value. With little else to do, investors should take a cautious approach with XRP.
Cardano (ADA USD)
One of the early pioneers among alternative cryptos, Cardano (ADA USD) proudly states on its project website that its PoS blockchain was the “first to be founded on peer-reviewed research”. So far this year, however, this fundamental catalyst hasn’t helped the ADA award. At the time of writing, the coin is trading for just over 43 cents.
What might be unsettling for Cardano fans is that the technical narrative doesn’t seem encouraging. According to Cryptonews.com, ADA “formed a descending triangle pattern that is extending support near the $0.4181 level. As descending triangles are likely to break on the downside, it is important to keep an eye on the $0.4181 level.”
The publication notes that reaching $1 will pose a “significant challenge.” At the moment it is difficult not to agree with this assessment.
Looking at Cardano’s five-year chart, the current price action is similar to that of the 2017-2018 boom-bust cycle. In fact, a large surge higher resulted in a gradual fall in the rating – with some upward headfakes along the way.
One of the cryptos known as the Ethereum killer, Solana ultimately aimed to usurp ETH as the backbone of the blockchain. While Ethereum brought myriad innovations to the table, the network suffered from high transaction fees called gas. To address this issue, Solana provided an alternative platform. It’s faster, more scalable and just as secure – if not more secure.
Unfortunately, this year has not brought good news for Solana or other cryptos. With major headwinds such as rising dollar strength negatively impacting risky assets, SOL does not appear to be a comfortable investment.
However, many are choosing to turn that frown on its head, noting that Solana could expect a massive breakout on the next bull run. Additionally, some bold pundits are considering the possibility of $1,200 SOL.
Investors should rely on Solana’s long-term chart for now. Technically, the trajectory appears to be the same as other cryptos: a strong surge to the upside followed by a gradual erosion. Therefore caution is called for.
On the day of publication Josh Enomoto held a LONG position in BTC, ETH, USDT, ETC, XRP and ADA. The opinions expressed in this article are those of the author and are governed by InvestorPlace.com Posting Policies.