Broadly speaking, deflationary forces dominate risk-on markets. Just look at the actions of the Federal Reserve, consistently raising the benchmark interest rate to combat inflation. In turn, the central bank succeeded in arresting the erosion of the dollar's purchasing power. This doesn't bode well for cryptos.
As a wide-ranging statement, investors should approach cryptos cautiously. No, I'm not being a doom-and-gloomer. I'm just being realistic, and arguably, so should you. Below are seven cryptos to watch.
Although fans of cryptos may argue that Bitcoin (BTC-USD) is be due for an imminent comeback, investors may want to prepare for the less-optimistic possibility. Rather than swinging higher, it's not out of the question entirely that BTC could steadily give up ground. If so, it poses challenges for other blockchain-based assets.
For now, experts in the field look to rising dollar strength as an overriding near-term headwind for Bitcoin and cryptos. Per Barron's, "Dollar strength has posed problems for the world of digital currencies, and the U.S. Dollar Index continued to firm up on Monday [Oct. 3], rising to 112.20."
To be fair, not all analysts hold bearish sentiments toward cryptos. Should the greenback turn south again, BTC can fly higher, according to Charlie Erith, CEO of ByteTree Asset Management.
Nevertheless, the five-year BTC chart suggests bullish traders may have to wait a while. Remember that it took a few years following the end-of-2017 rally for cryptos to rise decisively higher.
In the middle of September, Ethereum (ETH-USD) completed its most intensive project yet in an initiative called the Merge. Transitioning from its original proof-of-work (PoW) consensus mechanism to proof of stake (PoS), Ethereum garnered intense interest. Should the network pull off the transition, some folks reasoned, the ETH blockchain would become much quicker and more secure. Thus, the added utility could drive ETH prices higher.
So far, though, this narrative has not panned out. As well, other cryptos printed disappointing price action, leading to major question marks about nearer-term viability. To be fair, technical analysts recently weighed in, noting that if ETH can hold its support line, a jump to $1,730 could be in the cards. From there, a return to $2,000 (and hopefully beyond) may materialize.
Of course, investors must conduct their own due diligence. However, based on the five-year chart, I'm just not seeing a high-probability upside move in the immediate term. Primarily, ETH looks as if it printed a head-and-shoulders pattern between May 2021 and April 2022. If so, it could be an extended winter for Ethereum.
When I look at Tether (USDT-USD) and what could be on the horizon, I can't help but consider the financial crisis in Lebanon. According to Reuters, the embattled nation suffered from severe economic turmoil. In response, citizens took to the streets, demanding that banks give them their money. Because of the catastrophic developments, some Lebanese bankers called for capital control laws.
Fundamentally, the correlation between what we're seeing in Lebanon and what might happen in Tether is a lack of confidence. If the Lebanese people had confidence in their nation's monetary and economic infrastructures, bank runs would be unnecessary. However, absent of confidence, people naturally want their money in their hands.
While I refuse to say whether Tether, a stablecoin pegged to the dollar on a 1-for-1 ratio, will collapse (because it's an unknowable circumstance), too many incidents occurred for anybody to be comfortable holding substantial wealth in USDT.
I'm not going to tell you what to do with your money. All I can say is, please be careful with any and all cryptos.
For those that are new to the world of cryptos, you might not realize that the Ethereum you know and love represents the second iteration of the innovative blockchain. Originally, only one Ethereum existed. Unfortunately, the original network got hacked, leaving developers unsure how to proceed. Those that wanted a reset chose to hard fork into the current Ethereum chain. In turn, the original chain received the label Ethereum Classic (ETC-USD).
Fundamentally, what could be intriguing for ETC is that, because Ethereum 2.0 transitioned to a PoS consensus mechanism, the original chain distinguishes itself through committing to a PoW protocol. With no plans to transition to PoS, Ethereum Classic rewards meritocracy over staking magnitude. That is, anyone who wants to accrue a higher probability of mining-related rewards simply needs to acquire more computing power.
While this framework makes for an enticing speculative case, realistically, investors should also prepare for a long winter. Just like what occurred following ETC's late-2017 rally, Ethereum Classic may take some time to fully correct downside toxicities before it rises again.
One of the most intriguing storylines impacting cryptos is the lawsuit surrounding XRP (XRP-USD). Specifically, the U.S. Securities and Exchange Commission alleged that XRP founder Ripple Labs used the digital asset to sidestep securities laws. Since the filing of the suit, XRP has traded wildly as traders essentially placed wagers on what might happen next.
Interestingly, I-Remit, a partner of Ripple, made an official statement noting that when it used XRP, it never viewed the asset as a security but rather as a "tool for fast, cost-efficient, cross-border transfer." Whether such a statement shifts the needle favorably for XRP - and Ripple Labs - remains to be seen.
Generally speaking, courtroom dynamics are difficult to predict. Instead, prospective investors may want to consult XRP's long-term chart. Here, the pattern runs similar to other cryptos. A massive leap higher, followed by gradual fading of market value. With little else to go on, investors should take a cautious approach with XRP.
One of the early pioneers among alternative cryptos, Cardano (ADA-USD) notes proudly on its project website that its PoS blockchain represented the "first to be founded on peer-reviewed research." So far this year, though, this fundamental catalyst hasn't helped the ADA price. At time of writing, the coin trades hands for a little over 43 cents.
What may be worrying for Cardano fans is that the technical narrative doesn't appear encouraging. According to Cryptonews.com, ADA "formed a descending triangle pattern, extending support near the $0.4181 level. Because descending triangles are likely to break on the lower side, it’s critical to keep an eye on the $0.4181 level."
The publication notes that reaching $1 will represent a "significant challenge." At the moment, it's difficult not to concur with this assessment.
Looking at Cardano's five-year chart, the present price action resembles that of the 2017-2018 boom-bust cycle. Effectively, a large swing higher resulted in a gradual valuation fading - with a few upside head-fakes along the way.
One of the cryptos known as Ethereum killers, 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 help remedy this problem, Solana provided an alternative platform. It's quicker, more scalable and just as secure - if not more secure.
Sadly, this year has not brought good tidings for Solana or other cryptos for that matter. With major headwinds such as rising dollar strength negatively impacting risk-on assets, SOL does not seem a comfortable investment.
However, many choose to turn that frown upside down, noting that Solana could be due for a massive breakout in the next bull run. Additionally, some bold pundits are mulling the possibility of $1,200 SOL.
For now, investors should rely on Solana's long-term chart. Technically, the trajectory appears the same as other cryptos: sharp rise higher, followed by a gradual erosion. Therefore, caution is the name of the game.
On the date 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 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.
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