On paper, the devastation in the cryptocurrency sector can be explained largely that certain coins faced monthly options expiration. But if we take what ardent supporters have to say on the matter at face value, once the weak hands are flushed out of the market, the bulls will regain control. Therefore, it’s important to not give in to fear, uncertainty and doubt (FUD) when it comes to cryptos.
Still, it’s important to be a realist, which is much different from being a “hater” or a promoter of FUD. These folks tend to operate on negative emotions. On the other hand, realists operate on facts, and the fact of the matter is that there’s nothing new under the sun. Sure, the technical mechanism of cryptos is unprecedented. But decentralization of currencies is akin to a Hollywood retread.
During the Free Banking Era between 1837 and 1864, the lack of a national banking system meant that individual states were allowed to issue their own banking charters, leading to the era of wildcat banks or speculative financial institutions that eventually went insolvent. During the height of this monetary decentralization, even businesses and individual citizens issued their own private currencies. They were analog cryptos — and enjoyed almost three decades of resilience.
Another interesting facet to consider is that according to a Wikipedia entry, various entities “printed an estimated 8,000 different types of money by 1860.” Unfortunately, I was not able to corroborate this figure with another source. However, Robert Hockett, Edward Cornell Professor of Law and Finance at Cornell Law School stated that the “nation’s currency supply largely consisted in hundreds or thousands of distinct bank notes all trading at various discounts to stated par.”
If indeed there were 8,000 different types of money in circulation by 1860, that makes the massive amount of available cryptos rather tame by comparison. So yes, virtual currencies can still rise higher.
Nonetheless, one of the biggest problems of the wildcat banking era was instability. Currencies fluctuated wildly in value relative to each other and to mainstream established benchmarks. While the populist movement of Jacksonian Democrats favored a decentralized monetary system levered away from the elites and the aristocracy, the chaotic nature of wildcat notes made such a system unfeasible. Thus, it’s worth considering this history lesson as you assess these cryptos.
- Bitcoin (CCC:BTC-USD)
- Ethereum (CCC:ETH-USD)
- Binance Coin (CCC:BNB-USD)
- Tether (CCC:USDT-USD)
- Solana (CCC:SOL-USD)
- Cardano (CCC:ADA-USD)
- Dogecoin (CCC:DOGE-USD)
My point in mentioning this is not to impugn cryptos. Rather, you want to be aware of the risks when charlatans bombard you with marketing hype designed to instill the fear of missing out (FOMO). Remember, the technology of cryptos is new but the concept of decentralized money is not only a retread but one that proved to be disastrous in the end.
Cryptos to Wager On: Bitcoin (BTC-USD)
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Bitcoin started off 2021 with a bang. While it will probably end the year on a decisive up note, it will simultaneously disappoint supporters who, just months ago, anticipated a challenging of the once-mythical six-figure target. For instance, according to Google Finance, Bitcoin has a year-to-date return of 62% heading into the open of the midweek session for the stock market.
Don’t misread this — 62% is a heckuva return in any one-year period. Still, it’s not out of the question for hot tech stocks to match this gain if not outright beat it. So, will Bitcoin resume its winning ways in 2022?
I’m not going to discount the possibility of this outlook. If wildcat bank notes could survive for nearly three decades, Bitcoin, which has established itself as a mainstream digital asset benchmark, has a solid chance for upside.
However, the recent correction in BTC — driven by the aforementioned options expiry — is problematic nearer-term because it pushed the coin below the critical $50,000 threshold. Investors need to see a quick retaking of this line before they can be confident of a broader recovery in cryptos.
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As a Coindesk article recently pointed out, various improvements with the Ethereum network should make the underlying ETH coin more desirable in 2022 and beyond. Mainly, the much-anticipated shift toward a proof-of-stake (PoS) protocol will basically remove energy-sapping miners from the blockchain. In their place, transactional validators will serve as the main point of engagement for the network.
In addition, as part of the transition to PoS, Ethereum coins may have a negative impact on the current supply. However, all other things being equal, a deflationary condition would be positive for ETH and other cryptos. From economics 101, more demand and less supply equate to much higher prices. So, why is Ethereum struggling at the moment?
Again, the options expiry affecting Bitcoin has contributed to the drag on ETH prices. Unfortunately, this situation raises a credibility issue. Only a handful of cryptos that are not stablecoins have posted positive performances over the trailing 24-hour period. Therefore, wherever BTC goes, so goes the rest of the market — an undesirable dynamic for long-term growth of the sector.
Also, Ethereum is below the $4,000 level, which is problematic. We need to see a quick rebound back to this point; otherwise, nearer-term pain is not out of the question.
Cryptos to Wager On: Binance Coin (BNB-USD)
On balance, Binance Coin has held up reasonably well during the choppiness over the past several weeks. Primarily, BNB coins stand 17% above their 200-day moving average, a longer-term technical indicator of market health. In contrast, Bitcoin is about 2% below its 200-day moving average (DMA), which by itself is worthy of concern.
While some folks dismiss technical indicators as charting voodoo, the reality is that many market participants pay attention to certain indicators, with the 50 and 200 DMAs being important benchmarks. Therefore, market weakness in BTC tends not to bode well for other cryptos.
While Binance Coin proponents can take some encouragement that its holding up its shape well, I’m also concerned that it’s appearing to lose its grip on the $520 support line. The more BNB lingers in an ambiguous manner around commonly monitored levels, the more emboldened the bears become. Therefore, I would like to some evidence of positive momentum.
If not, investors should prepare themselves for a correction to its 200 DMA, which presently sits at $444.
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I don’t usually discuss stablecoins like Tether because there’s usually not a whole lot to discuss. Unlike other cryptos, stablecoins basically undergird the virtual currency complex with digital liquidity. Pegged to the U.S. dollar, their value stays consistent with the global fiat monetary system, which is all fine and well until you start asking some basic questions. Among them, is there enough currency to back the number of distributed USDT?
As the price of cryptos enters the nosebleed section of the investment arena, people really need to start questioning the underbelly of the entire blockchain ecosystem. Keep in mind that Antebellum banks would fool auditors with either double-counting methods or layering a barrel of nails with silver on top, presenting an image of viability and liquidity that simply was smoke and mirrors.
Now, I’m not suggesting that Tether is not on the up and up. Nor am I besmirching the stablecoin industry. I own some stablecoins myself as they are easier to conduct crypto transactions: basically, you can stay within crazy crypto land without moving funds into fiat.
However, if this sector happens to be less than noble, you’re going to need to watch out.
Cryptos to Wager On: Solana (SOL-USD)
One of the more intriguing blockchain concepts thanks to its protocol leveraging proof of history (PoH), Solana has been one of the biggest winners among cryptos on a YTD basis. Now, the question is, will the SOL coin have enough to generate a solid run in 2022? If the charts are anything to go by, prospective investors may want to wait a bit for a steeper discount.
On an intraday basis on Dec. 27, Solana briefly breached its 50 DMA before closing down slightly underneath it. But the following session saw a huge decline, with SOL shedding nearly 8% over the trailing 24-hour period. As I write this, Solana is still struggling for traction, presenting a somewhat worrying profile.
To be fair, the digital asset is well above its 200 DMA, which implies longer-term strength. Therefore, it’s not time for current stakeholders to hit the panic button. However, SOL is also 12.5% below its 50 DMA now, which is a huge paradigm shift from being slightly above it.
Unfortunately, it appears that promoting fundamental value for the blockchain ecosystem is not enough to accrue market viability. Thus, investors should exercise vigilance here.
In earlier InvestorPlace articles, I mentioned that I’ve become increasingly worried about Cardano. Yes, it’s a wonderful blockchain network and the pioneer of PoS protocols. And while strong support — including among celebrities — bolstered the ADA price to incredible peaks, that momentum appears to be waning. For several days, the coin lingered around the $1.20 level, which represents a pivotal support line. Go below it and Cardano could look ugly.
Well, sure enough, the bulls responded heartily, sending the digital asset substantially higher. At the peak of the Dec. 27 session, ADA registered $1.59, right on its 50 DMA. However, the subsequent sessions into the morning hours of the Dec. 29 session were ugly. I find it curious that the bears stopped Cardano at the 50 DMA, preventing any further progress.
It could be just another one of these weak-hand shakeouts. It wouldn’t be the first time nor will it be the last. At the same time, if you were looking for a confidence-boosting action, this wasn’t it. As with the other riskier cryptos, I would exercise vigilance.
Cryptos to Wager On: Dogecoin (DOGE-USD)
From the beginning, Dogecoin has been a speculative affair, something that you throw loose change you found underneath the sofa at. True, some have risked a considerable amount of their wealth into DOGE and have walked away as millionaires. But these stories are incredibly rare and more critically are extremely risky. Now, there might be another reason to avoid reckless behaviors with so-called meme coins.
Since the July 2021 bottom, Dogecoin has been charting a series of higher lows. Just as encouragingly, the trading action was tight and relatively stable, allowing the 50 and 200 DMAs to bunch together. Thus, it appeared that DOGE bulls were cooking up a robust recovery narrative.
But since the correction in cryptos that occurred around mid-November, Dogecoin has not looked the same. It’s now no longer possible to say that the meme coin has charted a series of higher lows. At its current price of approximately 17 cents, it’s 15% below its 50 DMA and 29% below its 200 DMA.
Hopefully, for the bulls, this is just part of the usual volatility in cryptos. Nevertheless, I would be much more careful with DOGE — yes, even more so than usual.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, ADA and DOGE. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.