At first glance, it appears that cryptos have suffered from the phenomenon known as buy the rumor, sell the news. With so much hype centered on the approval of exchange-traded funds (ETFs) for the benchmark cryptocurrency, when the big development finally hit, the digital asset market collectively responded, eh.
Perhaps a good correlating example is the legal cannabis market. Before Canada legalized recreational marijuana, the hype train ran wild regarding a new “green” paradigm shift. However, many if not most (if not all?) of the heralded enterprises suffered devastating market losses. Buy the rumor, sell the news – that’s a lesson I learned the hard way.
However, the difference between cryptos and cannabis is that the former is genuinely groundbreaking. Yes, legal cannabis is groundbreaking too in a sense – but only in a sense. Pot will almost certainly never be recognized as a possible disrupter to the dollar as virtual currencies have been.
Plus, there seems to be a rational explanation for the selloff in cryptos. With FTX going bankrupt, the underlying liquidation sale of the benchmark crypto likely influenced the market. However, as CoinDesk pointed out, with that event in the past now, it’s possible that blue (or at least bluer) skies lie ahead.
Here are seven cryptos to watch.
Bitcoin (BTC-USD)
Let’s get the bad news out of the way first. As Reuters pointed out, Bitcoin (BTC-USD) fell below the psychologically significant $40,000 level. That comes out to a seven-week low and the first time the original blockchain asset slipped below 40K since the launch of 11 spot Bitcoin ETFs on Jan. 11 (that’s the first time I noticed that symmetry – cool!).
Again, CoinDesk pointed to a legitimate reason for the fallout. With the liquidation sale, FTX has likely sold the vast majority of its Bitcoin holdings. Therefore, with (possibly) the worst of the damage out of the way, bearish pressure may subside. In turn, the bulls – among whom the contrarians may be energized by the discount – could drive up BTC.
That’s the good news but it won’t be an easy ride. At time of writing (early Tuesday morning), BTC trades hands at around $39,840. That puts its conspicuously below the 50-day moving average of a bit over $43,000. Based on recent history, it’s not a capital sentence or anything like that.
However, just bear in mind that the 200 DMA sits at $33,500. So, some patience may be in order.
Ethereum (ETH-USD)
As the seemingly perpetual number two digital asset by market capitalization, Ethereum (ETH-USD) typically goes wherever Bitcoin ends up. That’s mostly been the case with ETH’s recent price action but with an important caveat, which I’ll explain later. In the past 24 hours, the popular coin suffered a market loss of nearly 4%.
Also, in the trailing seven days, ETH incurred a dip of around 7.5%. That’s steeper than Bitcoin’s one-week loss of just under 7%. Of course, these aren’t appetizing statistics but the nuance is that at time of writing, Ethereum is trading right on its 50 DMA after briefly falling below this point. Interestingly, ETH slipped below this moving average two distinct times this month.
Still, investors should be careful about overinterpreting the last point: these corrections occurred prior to Bitcoin’s ETF approvals. Without a major mainstream catalyst, it’s an open question where ETH and other cryptos head next.
However, if the major fund outflows have truly abated, then it’s possible the recovery in cryptos could happen relatively quickly. Keep your eye on it and watch for possible additional discounts.
Tether (USDT-USD)
As a stablecoin, Tether (USDT-USD) doesn’t capture the type of attention that most other cryptos do. Because USDT is pegged to the dollar, it acts primarily as a liquidation mechanism. By that, I mean it’s easier to convert Tether to whatever virtual currency you want to acquire. Therefore, the stablecoin acts as a wealth storage vehicle, enabling investors to “freeze” their value in crypto terms.
Naturally, this intermediary mechanism linking the fiat currency world with the virtual currency ecosystem means Tether plays an outsized role in the blockchain. It’s effectively the motor oil of the blockchain engine. Just like in real life, you’re not going anywhere without oil lubricating the thousands of metallic parts undergirding your vehicle. And occasionally, it’s good to check the oil to make sure things are running smoothly.
Notably, USDT fell off its one-to-one peg, trading hands at 0.999 to the dollar. That’s nothing, I agree but it also indicates that at this point in time, fiat dollars are worth more “crypto dollars,” so to speak. So, I’d watch for this dynamic to reverse to get a better indication of when to jump back into virtual currencies.
Solana (SOL-USD)
While the major cryptos will inevitably attract most of the mainstream attention, the altcoins or alternative (non-BTC) cryptos arguably offer the more excitement. However, that’s also a good and bad thing, as Solana (SOL-USD) holders recently discovered. Compared to other decentralized digital assets, SOL incurred an ugly beating. The stats don’t lie.
In the past 24 hours, SOL slipped more than 7%. In the trailing seven days, it practically went into free fall, losing almost 16% of market value. What’s worrying from a technical (analysis) standpoint is that in the past 48 hours, Solana lost its battle to stay above its 50 DMA. Trading hands at $82.53 at tie of writing, it’s noticeably below the aforementioned benchmark, which comes in at $90.52.
Is this a capital sentence? That’s not what the data suggests as SOL has dipped several times below its 50 DMA, only to eventually bounce back higher. Nevertheless, it’s important to point out the gap between the 50 and 200 DMA ($45.22).
In other words, I’d be patient. After all, a move toward the 200 DMA could be a very compelling long-term discount.
XRP (XRP-USD)
Another crypto asset that knows a thing or two about buying the rumor and selling the news, XRP (XRP-USD) initially skyrocketed last year as a victory in federal court afforded the digital asset legal precedent. Unfortunately, the plaintiff in the case – the friendly agency known as the U.S. Securities and Exchange Commission (SEC) – refused to go down without swinging. So, XRP was left in limbo.
Still, the encouraging aspect was that XRP trended along nicely with its 200 DMA as support; in other words, it printed a series of rising lows, to use technical analysis jargon. However, current market dynamics now put this jargon to the test. Since Jan. 12, the price action slipped below the 200 DMA and has consistently suffered momentum struggles to recover.
Unfortunately, the market loss of nearly 3% in the past 24 hours don’t help. Nor does the trailing-seven-day loss of over 9%. I’m not sure if investors should hit the panic button. Last October, XRP fell below both its 200 and 50 DMAs, only to ride the Uptober phenomenon’s coattails.
As with the other cryptos, some patience may be beneficial to better gauge a true bottoming level.
Avalanche (AVAX-USD)
While Solana may have absorbed a huge body blow, it’s Avalanche (AVAX-USD) that has stakeholders worried. In the past 24 hours, AVAX suffered a loss of nearly 10%. In the past one-week period, the coin gave up 20% of equity value. This may have been a case of too far, too fast.
During the Uptober cycle, Avalanche did exactly the opposite of what its name implies, skyrocketing to the heavens. Following a respite in November, it again went parabolic starting from early December. However, momentum faded, then reversed in the final days of last month. This month, AVAX struggled to hold above its 50 DMA. Unfortunately, in recent session, it caved to bearish pressure.
To be completely blunt, Avalanche represents one of the uglier names in cryptos right now. Priced at under $29 per unit, it’s sandwiched between the 50 DMA up top (at $37.47) and the 200 DMA below ($18.84). From a technical standpoint, it’s stuck in a sort of no-man’s-land.
For the coming week, I would exercise patience here. It’s not trading at a discernible support line. And the closest point of such support lies around the $21 level.
Dogecoin (DOGE-USD)
The crypto market can be a strange place: just look at the pricing dynamics of Dogecoin (DOGE-USD). As stated many times before, Dogecoin started off as a joke, a parody of the blockchain phenomenon. However, it took on a life of its own as a legitimate digital asset. Right now, it ranks as the number nine most valuable virtual currency by market cap.
It also happens to be among the best-performing major cryptos. That’s not saying much, to be clear. However, it’s fair to point out that DOGE “only” lost a bit over 3% of market value in the past 24 hours. Compare that to some of the losses seen in other virtual currencies and you may develop a small appreciation for the coin. At the very least, you can respect the underlying community.
For as much as the critics cast aspersions on Dogecoin, the reality is that the people who love it, love it. And that may be the symbol of all cryptos moving forward. Yes, plenty of legitimate criticisms and concern exist. However, the blockchain gives what the people want – a decentralized investment class.
Maybe don’t bet recklessly on DOGE. But don’t ignore it either.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT and XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
