After several weeks of trading below the all-important $1 trillion level, the market cap of all crypto finally breached the upside barrier, albeit barely. Still, it’s a mini-milestone event, with blockchain advocates eager for a reversal in the Federal Reserve’s monetary policy. Throughout last year, the central bank dramatically tightened the money supply, spooking particularly risk-on asset classes. But with inflation easing, proponents hope for a strategic pivot.
It’s not out of the question that such a pivot might materialize, which would bode well for cryptos. “Fed tightening seems to be lighter and inflation less of a risk,” Charles Hayter, CEO of crypto data site CryptoCompare, said in emailed comments to CNBC. “There is hope there will be more caution to rate rises globally.”
Nevertheless, investors should exercise caution. During the last major bull cycle, cryptos reached a peak valuation of $545 billion in early 2018. Soon afterward, the sector’s total market cap plunged to around $140.5 billion in late March. By early May, the sector reached a value of roughly $302 billion, more than doubling before imploding once again. In other words, be careful. Anything and everything can happen with cryptos.
Crypto to Watch: Bitcoin (BTC-USD)
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Continuing its remarkable run higher, Bitcoin (BTC-USD) at the time of writing stands a hair under $23,000. At the start of the year, BTC traded hands below $17,000. Within a matter of weeks, contrarian gamblers made off with around 35% returns. Now, the question is, should they sell or continue to dig in hoping for even greater returns?
What’s even more stunning about Bitcoin and other crypto is their resilience. Despite the bankruptcy of digital asset lender Genesis Global Capital, BTC shrugged off the downside implications. Instead, the main catalyst undergirding virtual currencies likely centers on Fed policy. If it reverses its monetary tightening strategy, BTC could be off to the races.
Still, it’s important to keep things in perspective. In February 2018 following an initial collapse of the Bitcoin price, BTC managed to pop up roughly 32% before gradually sliding downward. Therefore, investors need this rally to sustain for more than a month. Otherwise, the bears might take a bite out of the resurgence.
Crypto to Watch: Ethereum (ETH)
Another name among crypto that continues to impress onlookers, Ethereum (ETH-USD) started off the year at around $1,200. At the moment, ETH trades hands at $1,635, representing a 36% return in under a month. Even better from the standpoint of technical analysis, ETH now stands conspicuously above its 50 and 200-day moving averages.
Fundamentally, Ethereum also managed to brush off the Genesis Global Capital bankruptcy alongside other major cryptos. Currently, though, all eyes are focused on the upcoming Shanghai hard fork. Targeting a March 2023 release, this protocol update will allow Beacon Chain staked ether (ETH) withdrawals, per Coindesk.com. Ethereum developers also created a “shadow fork” to provide a testing environment ahead of the Shanghai upgrade.
Though circumstances bode well for ETH, investors should note that between April and May of 2018, Ethereum doubled in value before sliding down into blockchain purgatory. Therefore, investors should be cautious about betting too heavily on this and other cryptos.
Crypto to Watch: Tether (USDT)
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As a stablecoin, Tether (USDT-USD) doesn’t appreciably change value, being pegged one-to-one with the U.S. dollar. In prior years, the case for long-term ownership of Tether made some sense. With the dollar constantly eroding purchasing power, investors had the incentive to try their hands with risk-on assets like crypto. However, because of the aforementioned change in Fed policy, crypto traders must think carefully moving forward.
For instance, on a year-to-date basis at the time of writing, Tether gained 0.048% of market value. In comparison, the purchasing power of the dollar increased by 0.30% between Nov. and Dec. of last year. Therefore, by simply holding onto regular old greenbacks, everyday individuals can get a greater return just sitting on cash.
To be fair, holding Tether enables stakeholders to acquire cryptos at lightning-fast speeds. However, with the Fed not stating with conviction that it will reduce benchmark interest rates, virtual currencies remain a risky proposition. Combined with the implosion of other stablecoins, investors should be cautious about overexposure to USDT.
Undergirding the Binance virtual currency exchange, BNB (BNB-USD) has an unfortunate spotlight on it, with competing platforms succumbing to bankruptcy. Fortunately, BNB likewise took the recent controversies in stride, jumping higher alongside other cryptos. In the trailing week, the coin gained over 7% of market value. And in the past 24 hours from the time of writing, it gained over 5%.
From a technical analysis standpoint, BNB admittedly looks encouraging, with the present price flying above its 50 and 200 DMAs. At the beginning of the year, BNB traded hands at approximately $244. As I write these words, it’s up near $322, representing a 32% return.
Though impressive, between March and June 2018, BNB underwent a recovery rally following the correction in Jan. that year. From a low of roughly $8 to a peak of around $17.27, BNB gained about 116% of its market value. Again, as impressive as this year’s 32% return is, investors must keep everything in perspective.
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Although other crypto posted decisively encouraging chart patterns, the recovery rally in Cardano (ADA-USD) leaves some room for mild concern. Don’t get me wrong, Cardano has been downright impressive. At the Jan. opener, ADA traded hands for approximately a U.S. quarter. Right now, however, ADA managed to drive to just under 38 cents. Rounding up, we’re talking a sweet 52% return – and Jan. isn’t even over yet.
Still, what might bug some prospective investors is that at this moment, Cardano failed to breach its 200 DMA. To be sure, it’s close. The 200 DMA stands at 40 cents while ADA trades at 38 cents, leaving a 5% gap and some change. That’s nothing in the world of cryptos. Nevertheless, it stands out because many other non-stablecoin digital assets blew past their 200 DMAs.
Further, despite Cardano’s stratospheric run, it performed better as a dead-cat bounce in 2018. Between April and May of that year, ADA posted a return of 149%. So yes, it’s great to be excited about cryptos right now. However, just keep everything in perspective.
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Once branded as an Ethereum killer for its ability to foster high-speed transactions at a fraction of the costs associated with the ETH network, Solana (SOL-USD) drew much interest among blockchain developers. Soon, investors strictly seeking the capital gains potential of cryptos jumped on board, sending SOL to the moon.
Unfortunately, Solana got caught up with the infamous FTX bankruptcy. Though Reuters reported that Solana and FTX had little to do with each other, FTX founder Sam Bankman-Fried’s outspoken support of SOL saw the coin tumble. Still, enjoyed one of the most remarkable rallies in cryptos this year. Starting from around $10 per coin, the price jumped to nearly $25.
While no doubt pleasing newcomers to SOL, the digital asset still has a mountain to climb. Long-term support stands at around $30. Therefore, Solana needs another 20% rally from here. Considering that we’re talking about crypto, a 20% move is well within reason. Still, it’s worthwhile to tread carefully.
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Though Dogecoin (DOGE-USD) carries somewhat of a controversial profile because of its irreverent stance, this renegade attitude also charms onlookers. If you consider some of the most popular cryptos, their underlying white papers aim for a better economy, a better world, or at minimum a better blockchain. With Dogecoin, the emphasis appears to center on community and having fun.
It’s not a particularly serious enterprise but that’s why it’s so refreshing. With Dogecoin, you’re gambling. Therefore, anytime you buy DOGE, you know what you’re getting yourself into. No cover exists in the sense of framing your speculation as a means to address world hunger.
Certainly, DOGE has performed well in the year so far. Starting January at around 7 cents, DOGE popped up to 9 cents, generating a 28% return. Still, back in April of 2018, Dogecoin gained 119% before eventually falling and going sideways. Thus, it’s okay to be a little skeptical about the current rally.
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.