Unfortunately, the central bank made a deal with devil. In order to survive the onslaught of the coronavirus pandemic, the Fed injected liquidity into the monetary system. For some time, circumstances appeared somewhat normal. However, as money velocity began accelerating in 2022, inflation similarly skyrocketed. Subsequently, the bankers' efforts to slow inflation imposed significant pressures on cryptos to watch and other risk-on assets.
Prior to the jobs report, circumstances seemed somewhat favorable for a reversal of hawkish monetary policy. However, that might no longer be the case. Therefore, investors need to be diligent regarding the below cryptos to watch.
After storming out of the gates for 2023, Bitcoin (BTC-USD) conspicuously suffered a lull in recent sessions. Don't get me wrong - data from Google Finance reveals that on a year-to-date basis, BTC gained nearly 38% of value. However, it's also difficult to ignore the impact that the latest jobs report had on Bitcoin and other cryptos. In the trailing five sessions, for instance, BTC dipped almost 3%.
Part of the reason why investors may be skittish about cryptos in general centers on the labor market's texture. On one hand, you have a robust environment where seemingly anyone that wants a job can get a job. However, the technology sector has absorbed the brunt of the job cuts that are occurring. Unfortunately, this dynamic hurts the broader blockchain ecosystem as fewer people have higher-paying jobs.
At time of writing, Bitcoin sits just underneath the $23,000 level. Interestingly, the $24,000 level acted as strong resistance, both this year and during late summer last year. Ideally, BTC needs to get to the $30K level to inspire confidence among the bulls. Otherwise, the bears could take over, which would be bad news for cryptos.
Another digital asset that got off to a flying start to 2023 is Ethereum (ETH-USD). With it, investors now wait for further clarity. Again, it's not that ETH performed poorly this year. Quite the contrary, Google Finance reveals that since the Jan. opener, Ethereum gained 36% of market value. However, in the trailing five sessions, ETH slipped about 0.6% at time of writing.
Negative implications associated with the strong jobs report may be to blame. To add onto the narrative, the details showed that the leisure and hospitality sector led the growth in employment opportunities. To put it bluntly, these jobs are not ones where you can call it in. Instead, you've got to show up, which actually hurts cryptos.
Think of it this way: workers can't trade cryptos on the job because, you know, they must work. At the moment, ETH trades a bit above the $1,600 level. However, this point imposed significant resistance last year. Ultimately, for this rally to continue, Ethereum must at minimum regain control of $2,000.
All other things being equal, stablecoins like Tether (USDT-USD) represent negligible market risk. Pegged to a hard currency (in this case, the U.S. dollar) on a one-to-one ratio, wherever the greenback goes, Tether will follow. While arbitrage opportunities may arise every now and again, for the most part, what you see is what you get.
However, it's what you don't see that can become incredibly costly for investors. Allegedly, data from Coinopsy revealed that by late May last year, at least 2,421 cryptos failed. While it's not an apples-to-apples comparison, global headlines gawked over the implosion of once-revered platforms like FTX. To be clear, I'm not suggesting that Tether will implode anytime soon, if ever. However, it's also not out of the realm of possibility.
Further, if cryptos fail to rebound from here, investors should be cautious about carrying too much risk in Tether. After all, USDT offers conveniences for traders during bull markets. Under bearish cycles, you might be better off holding Federal Reserve notes.
One of the most unwittingly controversial cryptos due to attracting a lawsuit from the U.S. Securities and Exchange Commission (SEC), Ripple Labs' creation XRP (XRP-USD) presents both an intriguing and risky narrative. On one hand, if the lawsuit ends up favoring Ripple, XRP would essentially gain legal clarity. But on the flipside, the legal drama could also sink the digital asset.
Interestingly, though, CNBC noted that Ripple CEO Brad Garlinghouse believes that a ruling will come down this year, perhaps during the first half. Obviously, investors will be hoping for a positive legal result. However, any decision one way or the other will at least put the longstanding drama behind the enterprise. That's got to be worth something.
Encouragingly, XRP printed a series of rising lows since the summer of last year. However, for the Ripple creation to really make waves, it must establish at minimum a baseline of support at the 50-cent level.
Although Cardano (ADA-USD) is one of the most popular alternative cryptos, it also ranks among the most frustrating. Despite a strong showing in 2023, ADA gave up nearly 68% of market value during the trailing year. That's incredibly worrying given that risk-on assets face a problematic outlook if the Fed continues to raise interest rates.
To be fair, ADA blasted much higher than its 50-day moving average, which currently sits at 32 cents. However, ADA itself trades hands for about 39 cents a pop. This aligns with its 200 DMA, meaning that this longer-term moving average represents upside resistance. Glaringly, many other cryptos currently trade above their 200 DMAs.
Obviously, for the bulls to have any chance of sustaining the current rally, ADA must move past the 39-cent level. At minimum, Cardano must establish a baseline at 45 cents. From there, it can start climbing the wall back above the psychologically critical $1 milestone.
Initially billed as a potential Ethereum killer, Polkadot (DOT-USD) now aims to avoid getting killed. In the trailing one-year period, DOT suffered a loss of around 70%, one of the more severe struggles within cryptos. Fundamentally, Polkadot's trajectory may largely depend on what future Fed policy looks like. Unfortunately, the environment doesn't look particularly hospitable.
Politically and ideologically, objective number one for the central bank is to control inflation. Moreover, as prior comments by policymakers indicate, the Fed can't afford to play nice with rising prices. Otherwise, a premature return to an accommodative policy could see the economy suffer the same problems once again.
Presently, the market prices Polkadot above both its 50 and 200 DMAs. However, for the latter, the positive delta is minute. Therefore, DOT needs to start moving higher and quickly. Preferably, DOT needs to get to the $10 level, which carries significant psychological importance. As well, the $10 level previously represented a demarcation between bullish and bearish cycles.
Another rival to Ethereum, Avalanche (AVAX-USD) seeks to unseat the ETH network as the preferred architecture for smart contracts. Per Coinmarketcap.com, "[i]t aims to do so by having a higher transaction output of up to 6,500 transactions per second while not compromising scalability." Enticingly, Avalanche has been one of the top performers among cryptos this year, gaining 84% since the January opener.
Moreover, AVAX currently trades hands above both its 50 and 200 DMAs - and by a considerable margin. At time of writing, the market prices Avalanche at $20.07 or over 15% above its 200 DMA. Also, it's 30% above its 50 DMA, reflecting strong momentum recently. Still, it's difficult to ignore the risk. In the trailing year, AVAX fell about 76%, a worrying figure.
In the immediate term, AVAX bulls will be looking to hold the $20 line. This level represented upside resistance last year so creating a baseline at this point would spark some confidence. At minimum, though, Avalanche will need to conquer $30, which is easier said than done.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, 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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