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For the last several months, it seems there has never been a boring day in the cryptocurrency market. And lately, China has been providing some fireworks, with analysts scrambling to figure out the longer-term implications of the crypto sector.
As you’ve undoubtedly heard, earlier in May, the Chinese government called for a crackdown on crypto mining and other financial-related activities that it deemed illegal. One of the primary reasons for the aggressive measure is that authorities believed blockchain-based investments do not serve China’s real economy. While I’m not one to support a communist regime, I can appreciate the argument.
It’s the same reason why the U.S. government is concerned about the growing influence and development of crypto investments. Since the trading and transactions occur on decentralized blockchain networks, it’s much easier for people to send money abroad. In turn, crypto participants could get rich in foreign jurisdictions, potentially avoiding the Internal Revenue Service.
But for now, Beijing is taking the leadership role in centralized control of the crypto market. As CNBC recently reported, crypto miners read between the lines. Scouring for new destinations, Chinese miners — with their domestic market once home to the global mecca of virtual currency mining operations — are eyeballing regions ranging from neighboring Kazakhstan to right here in Texas.
Is it possible, then, that the Lone Star State could be the next capital of crypto mining? While nothing is out of the question in this market, it’s important to realize that virtual currencies are extremely speculative. Should participants decide they have no value, the whole sector could come crumbling down. That’s why you should soberly assess these digital assets.
Keep in mind too that while virtual currency operations bring much-needed economic activities to regions suffering from economic slowdown, excessive power consumption is a huge concern. Therefore, don’t jump into crypto assets without performing extensive due diligence.
Crypto Assets to Watch: Bitcoin (BTC)
Although many crypto assets attempt to trade away from their correlation to Bitcoin, the overwhelmingly direct relationship cannot be helped. BTC is the digital asset that started it all. Until the crypto market matures to a point where each coin trades on its own fundamentals, everyone will be keeping an eye on Bitcoin.
And how is it performing this week? Honestly, Bitcoin has done well to hold on to its current consolidation pattern. Technically speaking, over the last seven days from the time of writing (mid-June), BTC is up over 23%. As I stand here, the crypto is gyrating above and below the psychologically important $40,000 threshold.
Still, my biggest concern is that sideways trading usually doesn’t end well for crypto coins. After such a meteoric rise, the fact that BTC can’t grab the $50,000 mark is disappointing. Historically, Bitcoin tends to correct after sharp inclines. While the past isn’t guaranteed to repeat, I wouldn’t discount it.
Nearer term, I’m sorry but I’m skeptical.
Ethereum (ETH)
Over the last several months, much fanfare erupted from the crypto community regarding Ethereum’s transition to a proof-of-stake (PoS) protocol as opposed to the traditional proof of work (PoW). Theoretically, PoS should be much more efficient than PoW and, therefore, a superior development for ETH. However, if I look at the price today versus its peak, it doesn’t seem the narrative is panning out.
Personally, I’m very curious how this PoS-versus-PoW debate will develop. I don’t think it’s as simple as PoS being more efficient and, therefore, cheaper for programmers to use. And that’s because in my opinion, crypto proponents have not given much thought about the economic component of blockchain protocols.
In short, if you make a protocol too efficient, you take away from a miner’s profitability margin. And since blockchains are inherently decentralized, losing engagement from the mining community would most likely be a death sentence for the underlying crypto.
Interestingly, like Bitcoin, Ethereum is just holding on to its consolidation pattern. Traders should note that while ETH is trending above its rising support line, the price range itself has broken below its resistance line.
Obviously, this will be a critical time for Ethereum and other crypto assets. Again, I’m skeptical nearer term.
Crypto Assets to Watch: Dogecoin (DOGE)
Although I’ve been critical about Dogecoin — seemingly everyone’s favorite joke crypto — I certainly understand its appeal. As I’ve mentioned in prior publications for InvestorPlace, I own some DOGE though I’m not entirely sure what led up to my stake. Maybe I was inebriated and thought that it’d be funny to have.
Well, it’s not a laughing matter anymore. People have made serious money from their speculation. Also, I must admit that I admire the moxie of this crypto community. It took a completely artificial asset and forced its inclusion into mainstream financial discussions. For that, a most excellent job!
As I explained in greater detail in my article for Blockster.com, DOGE has printed a head-and-shoulders pattern, one of the most reliable indicators in the discipline of technical analysis. This pattern was evident earlier this month, last week and guess what? Nothing’s changed.
Based on info from Coinmarketcap.com, over the last seven days, Dogecoin is down nearly 2%. This represents a sharp contrast to major crypto coins, which have made robust moves upward.
Again, I love the moxie but I’m very skeptical nearer term for DOGE.
Monero (XMR)
While Bitcoin always commands headlines for what it is, another crypto began hogging the limelight recently. Known as the bad boy in the land of virtual currencies, Monero represents an alluring asset. Known for its hyper-secure and confidential blockchain protocol, if you want to do something illicit — and please be clear I’m not making any recommendations — XMR is your platform of choice.
Because it’s so secretive, that got some folks thinking if Monero is really the future of crypto and not Bitcoin. When cybercriminals breached the network of Colonial Pipeline, the company decided to pay them the requested ransom in BTC. Surprisingly, media reports indicated that the U.S. government secured back most of the ransom.
While we’re happy for Colonial, it raised an important question: isn’t Bitcoin supposed to be a (relatively) anonymous platform where this kind of stuff couldn’t happen? Well, whatever went down, it happened. But that probably won’t be the case for XMR.
Indeed, the Internal Revenue Service is offering big bucks for anyone who can crack Monero. It’s no shocker, then, that interest in XMR went up, with the crypto gaining nearly 14% over the past week. Still, Monero tends to correct after sharp rallies, which is why I’m on the sidelines.
Crypto Assets to Watch: Chainlink (LINK)
One of the more intriguing blockchain projects, Chainlink garnered much praise for its incredible utility. According to Coinmarketcap.com, LINK is a blockchain “abstraction layer that enables universally connected smart contracts. Through a decentralized oracle network, Chainlink allows blockchains to securely interact with external data feeds, events and payment methods, providing the critical off-chain information needed by complex smart contracts to become the dominant form of digital agreement.”
Great. What does this mean in English? To understand Chainlink, you must recognize smart contracts, which enable exchanges of value between two parties without a human intermediary. Essentially, the blockchain acts as a trusted facilitator of contracts. However, some contracts may require information outside the blockchain — such as the spot price of wheat — to activate elements within a contract.
Chainlink offers the technology to grab such outsider data, potentially providing the missing link for blockchains to become integrated within mainstream society; hence the “ticker symbol.”
Still, the fundamental narrative isn’t helping out the technical storyline. Currently, LINK has fallen out of its rising trend channel, making this an extremely risky bet.
Ethereum Classic (ETC)
You might think that I’m being a negative Nancy on crypto assets. In reality, I’m doing my best to provide an objective opinion. The last thing I want to do is hype up virtual currencies only to see them collapse on my readers. I know how crazy this market is because I’ve lived through it like no one else has at InvestorPlace.
But you might be wondering, is there one crypto that you think might move higher? If I had to guess, I’d place my bet on Ethereum Classic.
For full disclosure, I trimmed my exposure to ETC right before things started to go sour for the crypto market. So I can’t say I’m a “HODLer,” though technically, I do have some funds to buy more Ethereum Classic at a cheaper price.
Anyways, the longer-term technical setup seems to be pointing in the direction of a bullish pennant formation. Adding to the potential upside implications is Ethereum Classic’s PoW protocol. According to Coinmarketcap.com, the ETC community has no plans to convert to PoS.
You know what that tells me? If the stars align favorably, ETC mining will be much more profitable than ETH mining. Therefore, we may see a shift from Ethereum to Ethereum Classic. Wouldn’t that be ironic?
Crypto Assets to Watch: Algorand (ALGO)
If you want some real nerd stuff — but read this with the word “hit” replacing the appropriate letters — in your crypto assets, you should check out Algorand. From Coinmarketcap.com, Silvio Micali, a professor of computer science at the Massachusetts Institute of Technology founded Algorand.
Moreover, Micali is “a recipient of the Turing Award (in 2012) for his fundamental contributions to the theory and practice of secure two-party computation, electronic cash, cryptocurrencies and blockchain protocols. This makes him one of the foremost creators of crypto in the world.”
Like I said, that’s some serious stuff. I’m going to be blunt. A lot of folks — including yours truly — bought into ALGO because it’s cheap and its technical momentum suggested more upside to come. Also, Algorand represents a choice asset for earning massive interest payments. Unfortunately, the crypto fallout requires a rethink.
While the double-digit interest rate payout is appealing, what I perceive to be a bearish broadening wedge formation is not. Also, note that ALGO is trading below the wedge, which to me is bad news. Forget my personal stake in this — I would not buy in right now.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, DOGE, LINK, ETC and ALGO. 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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