When the cybercriminals behind the Colonial Pipeline data breach received cryptocurrencies as a ransom payment, it raised questions about national cybersecurity. At the same time, in a cynical way, the incident highlighted the decentralized nature of cryptos. With virtual currencies, you are truly outside the mainstream financial system — or so the cybercriminals thought.
According to Bloomberg, the U.S. government recovered almost all of the cryptos given to the perpetrators. Seemingly in response, the virtual currency market tumbled. Analysts reasoned that decentralization failed if government agencies were able to retrieve the payment. Aren’t crypto users drawn to the space by its anonymous transactions?
While it’s easy to blame the ransom recovery for the latest volatility in cryptos, the market was already in red ink prior to this news. Further, we don’t know exactly how the government tracked down the ransom payment. There is a strange possibility that the cybercriminals were sloppy. And to be fair, most cryptocurrencies are not completely anonymous — the blockchain permanently records every transaction.
Instead, I view the decline among cryptos as a matter of economics and human psychology. Bull markets never perpetually rise, largely because of the dollar-for-value proposition. At a certain point, the juice is no longer worth the squeeze. Let’s face it — betting that the crypto complex will have a market capitalization over $2.5 trillion is far riskier than betting the same on a sub-trillion-dollar valuation.
Another concern is that institutional investors who bought cryptos may be reconsidering their purchase. They may tolerate 20% losses, but when you’re talking about losses nearly 50% from the highs, it’s time to think about risk mitigation. Therefore, investors should be extremely vigilant regarding these popular cryptos:
While I rarely urge investors to consider all-or-nothing proposals on either side of the trade, you should think about taking some profits off the table. Sure, you can “HODL” — but if you take some profits off now, you can potentially buy at a discount later, giving you more to HODL with.
Cryptos: Bitcoin (BTC)
As the original virtual currency and thus the benchmark for all cryptos, Bitcoin naturally gets the most attention. Further, mainstream news agencies have made it a point to track the BTC price. Despite efforts to diversify the crypto space, most coins and tokens follow Bitcoin’s lead.
Crypto supporters will not like what I have to say; nevertheless, I can’t beat around the bush. I’m very bearish on Bitcoin in the near term. True, BTC and other cryptos received a significant credibility boost. It also didn’t hurt that people across the world profited handsomely from them last year. At one point, BTC looked like it was going to hit a six-digit price point, which would have been massive.
Unfortunately, the crypto coin is printing a bearish flag pattern on the charts. Basically, the bulls attempted to build support and push back against the negativity. However, BTC lost a bit of its luster after its fall from glory. And the latest trade indicates that Bitcoin may have fallen out of the bearish flag channel, which bodes very poorly.
Although I’m not a crypto whisperer by any means, I’m targeting a price range between $15,000 and $20,000 before considering a buy.
While Bitcoin gets most of the praise, blockchain insiders often speak glowingly of Ethereum. Bitcoin proved that you can not only create a peer-to-peer (P2P) decentralized network, but also spark a digital economy that operates outside mainstream financial infrastructure. Naturally, this appealed to people who value freedom, but also attracted criminals.
Ethereum represents the evolution of blockchain technology. Moving beyond P2P decentralized transactions, Ethereum asks the question: What if we get rid of other middlemen?
What Bitcoin did to bank wire transfers, Ethereum sought to do with brokers, attorneys and other intermediaries. Now, the blockchain can be the trusted go-between for two parties, even if they don’t know each other.
But all its benefits couldn’t save ETH from volatility. Its problem is that cryptos generally need two successful underlying components: technology and economy. Ethereum has the former, but struggles with the latter. If people don’t see value in paying $2,500 for ETH, the price could drop much further.
Cryptos: Cardano (ADA)
As one of the more intriguing cryptos, Cardano’s claim to fame is its blockchain protocol, which operates on proof of stake (PoS) rather than proof of work (PoW). Typically, cryptos like Bitcoin run on a PoW protocol. With proof-of-work, miners compete for the right to verify transactions in the blockchain by solving intense algorithmic problems. Solve it first, and you receive a coin or token for your troubles.
Of course, as cryptos grew in popularity, mining became more difficult. Unfortunately for PoW-based coins, this translated to more power consumption, which sparked criticism of popular digital assets like Bitcoin. On the other hand, PoS protocols de-emphasize raw computing power for their mining operations. Instead, miners who have “equity” in the target blockchain — hence the term, “stake” — enjoy a higher probability of winning transaction rights and therefore earning power.
Cardano also received a boost as celebrities jumped aboard the ADA bandwagon. That helped the altcoin somewhat de-correlate from Bitcoin’s price trajectory. However, it appears that ADA is not at a critical tipping point. If Cardano falls below $1.50, it may continue to slide for a while.
The cryptocurrency started off as a joke, but Dogecoin has certainly taken on a life of its own. The mere mention of DOGE in mainstream media is a victory for the altcoin. Prior to its explosive percentage gains, only crypto advocates bothered to consider it as an investment. Now, the general public appears to be hungry for the coin.
Even though I own some units, I’ve long been skeptical about Dogecoin. Frankly, I’m not even sure how I came to own these coins. Perhaps I was drunk and thought that it may be worth something one day. Usually, such stupid bets amount to nothing but heartache. In this case, the greatest fantasy became a reality.
However, it’s time to accept the other side of that reality: speculative fervors just don’t last. I’m not at all surprised to see Dogecoin has printed a bearish head-and-shoulders pattern. You might frown upon technical analysis in the crypto space, but the pattern is historically reliable. Either way, I would stay far away from DOGE for the time being.
Cryptos: Ripple (XRP)
Ripple Labs always generated controversy, even before it became the target of a Securities and Exchange Commission (SEC) lawsuit. In the early days of the virtual currency market, early adopters clamored for the coin because of its decentralization. However, while the underlying XRP coin had the hallmarks of a blockchain-based asset, it was ultimately centralized. That didn’t sit well with many hardcore crypto supporters.
Still, I appreciate what Ripple Labs attempted to do — build a payment platform that would be quicker and cheaper than traditional methods like bank wire transfers. In that sense, I think XRP achieved sizable success. While pure decentralization is a lofty target, mainstreaming the blockchain probably requires some centralization. That way, corporate partners can contact someone if they encounter problems.
That being said, XRP has serious problems on its hands. First, the SEC lawsuit is a wildcard. While some developments are encouraging, you never know where things may ultimately head. Second, it appears that XRP dropped below a crucial technical support line. Perhaps it can make its way back up. However, it’s a big risk to buy XRP now.
Bitcoin Cash (BCH)
It started off on a controversial note, but Bitcoin Cash has gradually gained acceptance among crypto’s true believers. Before BCH was created, Bitcoin slowly but surely garnered support as a groundbreaking platform that could revolutionize the financial ecosystem. But as the BTC price soared to incredible heights, several people jumped on the bandwagon.
Usually, that’s a great sign for a publicly traded asset. But Bitcoin’s creator or creators apparently didn’t anticipate how popular it would become. As millions of people across the world began buying and transacting BTC, the underlying network became bogged down and unwieldy. A debate emerged among the miners and network contributors about what to do.
Eventually, the debate came to a head, and a sizable community of contributors and developers sparked a hard fork off the original Bitcoin blockchain. The result is Bitcoin Cash — a faster, more efficient version of Bitcoin. During this year’s crazy rally, BCH crossed the $1,500 price threshold and looked like it could match its all-time record high.
That probably won’t happen for a while, as Bitcoin Cash is charting a bearish pennant formation. Like other cryptos, I would avoid buying in at this price.
Crypto: Litecoin (LTC)
As one of the oldest altcoins, there was a time when Litecoin was trading for pennies on the dollar. If you get a time machine, buying boatloads of LTC when it first originated — along with BTC, of course — should be your first move. Barring such a device, your best move could be to wait.
No, I don’t think Litecoin will ever trade as a penny stock. Those days are long gone. But as things stand, LTC faces severe downside pressure. From May 20 to around June 6, Litecoin charted a bearish pennant formation. It looks similar to a bullish pennant, with except that this pattern appears after a massive downturn.
As a result, I’m very skeptical about LTC in the near term. The pattern is emblematic of a dead-cat bounce, as the bulls are attempting to build back support. However, their efforts to reach prior highs have been met with bearish resistance. At the apex of the pennant, assets that print this pattern typically break down. That’s exactly what you’re seeing with Litecoin, which is a concerning sign. Hold off on any LTC buys for now.
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On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, ADA, DOGE, XRP, BCH, LTC. 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.