7 Cryptos to Watch as Blockchain Battles the Fed
As a longtime fan and supporter of cryptocurrencies, I want nothing more than for these “cryptos to watch” to rise higher. Unfortunately, we also have to accept economic realities, especially with the Federal Reserve committed to its hawkish monetary policy.
In fact, with the unwinding of the money supply, the purchasing power of the US dollar has increased slightly from June this year. Should the Fed continue to implement its tightening strategies, cryptos and other risk assets will face significant headwinds. It all comes down to simple financial incentives. During an inflationary cycle, people had two primary choices with their money: spend it or invest it. Otherwise, holding cash would result in asset erosion. During a deflationary cycle, the opposite is true. People have an incentive to hold cash for essentially risk-free wealth expansion. Ultimately, such a scenario is a net negative for crypto.
Of course, this does not mean that deflationary forces will continue to affect global markets indefinitely. But for now, crypto faces massive obstacles and investors need to respect this dynamic. Still, here are some of the best cryptos to watch.
Bitcoin (BTC-USD)
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The legendary fund manager Paul Tudor Jones recently told CNBC that he had a minor position in Bitcoin (BTC-USD). Per Coindesk.com, it wasn’t exactly a ringing endorsement. However, Jones may be right about his thoughtfulness towards BTC. Earlier, during the crypto mega-rally, the fund manager emphasized digital assets. Today it is a slightly different story.
Fundamentally, Jones remains concerned about the Fed and its fight against inflation. Like others, the concerns revolve around the central bank’s aggressive approach and its consequences. “If we go into recession, that has really negative consequences for a number of assets,” Jones said below CNBC interview.
At the time of writing (late evening October 10), BTC is struggling to hold the $19,000 level. In the last 24 hours, Bitcoin lost 2% of its market value. Over the past week, it fell 2.6%. Given the technical profile of Bitcoin, investors must be prepared for the possibility of a slow trip down to the $10,000 level. About the only event that could break this negativity is a rise above 20K and back towards 30K.
Ethereum (ETH)
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Back in mid-September, Ethereum (ETH-USD) completed one of the most ambitious projects among cryptos. Originally, the ETH network used a proof-of-work (PoW) consensus protocol, which valued raw computing power to determine transaction validation rights. However, PoW drained too much energy. Therefore, blockchain developers envisioned a pivot to proof of stake (PoS), which featured a more efficient protocol.
However, no real plan existed for the transition, noted the merger. So, when the shift to PoS materialized successfully, it symbolized a major victory for both Ethereum and cryptos at large. Unfortunately, it was a fundamental victory. In terms of market valuation, Ethereum has not benefited from the pivot.
With Ethereum under various blockchain projects, red ink for ETH can easily translate into volatility for other cryptos.
Tether (USDT)
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Investors who have excessive wealth associated with Tether (USDT-USD) should reconsider the exposure. During raging bull markets, crypto velocity makes well-known stablecoins like USDT a top crypto to watch. During bear market cycles, however, the lack of velocity makes this digital asset class suspect.
“The primary risk for stablecoins is that they are not fully backed by the reserve currencies they say they are,” says Anthony Citrano, founder of Acquicent, a marketplace for non-fungible tokens (NFT). “In an ideal situation, the issuer of the stablecoin has enough reserves of the currencies (in cash or other highly liquid, safe investments) to fully support the stablecoin. Less than 100 percent and risk is introduced.”
Put another way, when the money is flowing and cryptos are swinging higher, no one bothers to check the fine print. The immediacy, the emotion of the moment, tends to make people overlook certain warning signs. But during the break, you can bet people will start asking questions. I am not here to say that Tether will collapse. But it is never completely ruled out, and therefore warrants a cautious approach.
XRP (XRP)
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Although betting on courtroom drama adds greater ambiguities to the mix, so far the narrative has worked for speculators. Just watch XRP (XRP-USD), one of the best cryptos to watch. In December 2020, the US Securities and Exchange Commission charged Ripple Labs, the originator of XRP, with securities-related violations. Essentially, the regulatory agency alleges that Ripple used XRP to circumvent securities laws. However, according to Finbold, XRP gained almost 60% in a month. Reason? Ripple secured some minor victories in the SEC-driven lawsuit. Furthermore, some rumblings suggest that Ripple could engineer a comprehensive legal victory. If so, it would give XRP legal clarity, providing an advantage that other cryptos do not possess.
Sure enough, over the past week, XRP rallied 8%. It was the best-performing blockchain asset among those ranked in the top 10 by market capitalization. Lately, however, XRP has looked dubious, to put it diplomatically. Honestly, XRP needs to hold on to its gains. Otherwise, a trip down to 30 øre is not out of the question.
Stellar (XLM)
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A peer-to-peer decentralized network, Stellar (XLM-USD) launched its network in 2015. Its main purpose was centered on “connecting the world’s financial systems and securing a protocol for payment providers and financial institutions,” according to Bitkan.com. Furthermore, “the platform is designed to move financial resources quickly and reliably at minimal cost. Stellar connects people, banks, payment processors and allows users to create, send and trade multiple types of crypto.”
Interestingly, Stellar represented one of the very few cryptos that had a significant return over the past week. At the time of writing, it increased slightly more than 6%. Initially, the platform fascinates because of the low transaction costs involved. Should the blockchain become further integrated into global communities, the Stellar network could facilitate microtransactions.
Still, as practical as the underlying network is, market viability remains the biggest concern in the near term. In the last 24 hours, XLM has looked quite pensive. Ideally, XLM should start moving towards the 15 cent threshold. Otherwise, a trip down to eight øre could be on the cards.
Quant (QNT)
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One of the lesser known alternative cryptos, Quant (QNT-USD) is another top crypto to watch. Launching in June 2018, the Quant network set out with the goal of “connecting blockchains and networks on a global scale, without reducing the efficiency and interoperability of the network,” according to Coinmarketcap.com.
Interestingly, Quant claims that it is “the first project to solve the interoperability problem through the creation of the first blockchain operating system.” Beyond the fundamental scope of the Quant network, the underlying performance of QNT also attracts intrigue.
First, Quant also represents one of the rare cryptos that has delivered positive results in the past week. QNT increased by 9%, a robust figure given the underlying circumstances. When considered from a long-term perspective (and on a logarithmic scale), you can see that the QNT generally charted a series of higher highs and higher lows.
While I don’t want to go overboard given the extensive volatility in cryptos, QNT should be on your radar if you’re the speculative type. Ideally, QNT should stay above the $140 level to avoid a retest of the psychologically important $100 threshold.
Elrond (EGLD)
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Finally, we wrap up this list of cryptos you can watch with Elrond (EGLD-USD). Another less discussed coin outside the blockchain advocacy crowd, Elrond primarily aims to offer extremely fast transaction speeds via sharding. In short, sharding represents “breaking” large tables of data into smaller pieces, referred to as shards.
Per Coinmarketcap.com, the Elrond project describes itself as a technology ecosystem for the new internet, which includes fintech, decentralized finance and the internet of things. Its smart contract execution platform is reportedly capable of 15,000 transactions per second, six second latency and a $0.001 transaction fee.
Over the past week, EGLD gained 6%, beating most other cryptos in terms of market performance. In a larger context, EGLD is somewhat encouraging in that the price point has been relatively stable since June this year. Whether it can maintain this trajectory will be key.
Personally, I don’t see it falling out of range anytime soon, which would mean a drop down to $20. Therefore, EGLD is one to put on your radar, although caution is still important.
As of publication date, Josh Enomoto had a LONG position in BTC, ETH, USDT, XRP and XLM. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Guidelines for publication.
