Initially, ambiguities over the longer-term impact of the Covid-19 omicron variant shook global markets, including cryptocurrencies. Early reports suggested that the new strain is much more transmissible than the delta variant, creating concerns about potential mitigation measures. Of course, that would entail drags on the international economy, which wouldn’t benefit cryptos.
Now, however, investors are resting a little bit easier as health experts weigh in on the available evidence. When discussing the severity of the variant, National Institute of Allergies and Infectious Diseases (NIAID) director Dr. Anthony Fauci stated, “It almost certainly is not more severe than Delta.” Further, Fauci remarked that omicron could be less severe. That is helping both stocks and cryptos regain composure.
While the recent comeback has been very encouraging — after all, multiple cryptos were trading at critical technical thresholds — no one can say for certain whether we’ve hit a bottom in negative sentiment. Sure, European stocks appear to be brushing aside omicron fears for now. However, Fauci cautioned against overinterpreting early data because the population covered skewed heavily toward younger demographics who are less likely to be hospitalized.
Just as importantly, investors need to concern themselves with not only the health risks here but also the economic threat omicron could pose. If global governments fear the variant, then it’s a legitimate risk — irrespective of the facts. With U.K. scientists warning about the variant’s high transmissibility, neither stocks or cryptos are out of the woods.
Back in the States, the UCLA Anderson Forecast recently scaled back its prognostications regarding employment gains and total jobs in California for 2022. Personally, I don’t find the reductions in these projections to be alarming. Nevertheless, investors should probably focus on governmental responses as they consider which major cryptos to buy.
Beyond the omicron uncertainty, investors should also consider geopolitical risks. Obviously, U.S. relations with China and Russia — already poor when President Joe Biden took the helm — are escalating in tension. Hopefully, cooler heads will prevail. Still, it’s something to put on your radar before you take too many wagers with cryptos.
Cryptos to Watch: Bitcoin (BTC)
There are many developments that have impacted the benchmark Bitcoin price. Most recently, though, a hearing between the U.S. House Financial Services Committee and six virtual currency firms has many investors sitting on the sidelines. The companies’ executives will present a case that harsher restrictions will push cryptos — and their associated businesses — away from U.S. borders and into the hands of other countries.
In my opinion, I find this thesis ironic. If cryptos represent a truly decentralized ecosystem, government restrictions that aren’t a wholesale crackdown on internet access shouldn’t really matter. By appealing to the U.S. government, these crypto companies are indirectly admitting that decentralized economies still depend on the tolerance and consent of centralized authorities. The whole issue seems to contradict the spirit of the underlying blockchain.
Nevertheless, in the early morning hours heading into the Congressional hearing, Bitcoin dipped again. At the time of this writing, BTC trades at around $50,000. I view this as a sign that investors must remain vigilant — if not for the omicron threat, than for other geopolitical and economic risks affecting cryptocurrency today.
Long story short, Bitcoin is playing with fire. Watch the 200-day moving average at roughly $46,500. Prolonged dips below that level could spell trouble.
As proponents of cryptos know, Ethereum represents the backbone of blockchain applications. Peruse any number of decentralized projects and chances are, you’ll find on the whitepaper that they’re based off the Ethereum protocol. This fundamental advantage has also given the ETH coin greater stability during bouts of volatility.
The numbers say it all. As I just mentioned, BTC is trading around $50,000. About a month ago, it was attempting to reach the $70,000 level, representing a roughly 28% decline. In Ethereum’s case, ETH was reaching toward $5,000 but missed the mark. Currently, it’s trading hands at around $4,400, an approximate loss of 12%.
Of course, if you had to take a loss, 12% sounds a lot better than 28%.
Additionally, Ethereum’s chart looks more encouraging, with the underlying coin straddling the 50-day moving average rather than being underneath it like Bitcoin. Still, investors need to be cautious. Throughout this year, ETH — and other cryptos as well — largely featured directional trajectories. This sideways stuff puts an uneasy profile over Ethereum, so careful money management is warranted.
Cryptos to Watch: Binance Coin (BNB)
Love it or hate it, Binance Coin has been one of the top-performing major cryptos of 2021. On a year-to-date (YTD) basis, BNB has gained more than 1,400% as of the early morning hours of Dec. 8. Tied to the cryptocurrency exchange of the same name — the biggest such platform by daily trading volume per CoinMarketCap — there’s a case to be made that BNB could be one of the safer crypto investments out there.
Now, when characterizing anything in the virtual currency space, it’s all relative. Certainly, “safer” is about as relative as you can get. Nothing about cryptos is particularly encouraging if you are, say, a buy-and-hold investor who likes blue-chip equities. Investors should exercise the same amount caution with BNB as they might with any other risky digital asset.
Nevertheless, by acquiring BNB, you’re indirectly participating in the ticket-selling component of the crypto wagering industry rather than betting on which team will win. Coincidentally, Binance also has a much stronger looking chart than competing cryptos.
At the same time, if outside developments take down Bitcoin, I’m not sure Binance Coin can hold on. Therefore, conservative investors may want to wait for some news to come in before placing an order.
One of the trickier cryptos to navigate, Solana has been on an absolute tear this year. Even with the recent pullback, you’ve got to realize that individual coins were selling between $1.50 to $1.60 at the beginning of 2021. With a time-of-writing price above $190, you can easily do your own math regarding the profitability here.
But now comes the hard part: what do you do with Solana now that it has already amassed a tremendous stream of wealth? Based on how meme coins — or even meme stocks — have reacted following their big boom, the future narrative doesn’t seem so inviting.
The thing about Solana is that, fundamentally, it’s one of the most useful blockchain initiatives around. Promoting its proof-of-history protocol, Solana facilitates greater security in transactional confirmations. Prior to this crypto, blockchain network contributors mined based on activity occurrences and not necessarily on when they happened. Basically, the technology undergirding SOL imbues the blockchain with a multidimensional security profile.
But will that matter to investors? Recently, SOL dipped below its 50-day moving average and extended losses for multiple sessions. As with the other cryptos, I’d keep my eyes glued to the news.
Cryptos to Watch: Cardano (ADA)
Measured on a YTD basis, Cardano remains one of the top performers among cryptos, generating a return of over 690%. But increasingly, that’s where the good news is ending. Against the trailing half-year period, ADA is down over 11%. Even more concerning, against the trailing month, the coin has lost around 34%. Unlike other digital assets, there’s also not much positive nearer-term dynamics to be excited about.
In the past five days for instance, Cardano has shed a good chunk of market value. Many bullish technical analysts had hoped ADA would maintain the $2 support line it established in the late summer. Unfortunately, the coin slipped below this key level a day after the mid-November session, however. Since then, it has never gotten out of the bearish vice grip.
Prior to these events, many supporters were optimistic that its utility — Cardano is essentially a pioneer of the proof-of-stake protocol — would help boost trading sentiment. That might appear on the table at some point. But for right now, the bears are in control.
Contrarians might view this as a discount, but I’d nibble very carefully. With cryptos flying in a holding pattern, you may want to wait for more confirmation.
Among the biggest concerns about cryptos is their regulatory ambiguity. Maddening and yet unfortunately understandable due to the laggard nature of governmental action, crypto-related transactions are more or less treated as securities for taxation purposes. But whether they actually are securities is at the heart of the U.S. Securities and Exchange Commission’s (SEC) lawsuit against Ripple Labs.
To make a very long and complicated story short, the SEC alleges that Ripple distributed XRP coins as a de facto initial public offering (IPO). However, if this really were an IPO, Ripple needed to undergo the same process that any other firm wanting to raise capital via the public market must submit to.
Naturally, Ripple contends that XRP is a cryptocurrency, citing similarities with Bitcoin — a digital asset that the government isn’t too worried about (yet). But how this lawsuit will end up is anyone’s guess. Still, a theory has emerged that the SEC may face an unfavorable development in its case. That may lead both parties to settle. Theoretically, at that point, XRP would then have legal clarity, potentially sending it “to the moon” alongside Japanese billionaire Yusaku Maezawa.
However, the technical chart looks very ugly. XRP is below both its 50- and 200-day moving averages. Anyone who bets on the theory above will be taking a big risk.
Cryptos to Watch: Polkadot (DOT)
Last up on this list of cryptos is DOT. If you believe in the technical approach in assessing the markets, you’re going to find Polkadot fascinating whether you want to participate in the opportunity or not. Currently, the coin is sitting on its 200-day moving average, putting it in a technical danger zone since it’s also well below the 50-day moving average.
Frankly, if I were viewing this chart as a random stock divorced from any fundamental information or context, I’d probably end up avoiding DOT. Even if the coin ended up bouncing higher, I’d monitor where the rally might end. If it ends around the $38 level, then I’d really be concerned. That would form a head-and-shoulders pattern, with the first shoulder forming in September.
What’s really interesting to me is that Polkadot is a contrast of powerful fundamentals and terrible technicals. On the utility front, its open-source sharding multichain protocol enables blockchain applications to operate at greater scope and scale. However, my main source of anxiety with DOT is that investors as a whole don’t seem to care that much.
Ultimately, Polkadot can be the most valuable blockchain network there is. But unless the market is willing to believe it, DOT runs the risk of further correction.
On the date of publication, Josh Enomoto held a long position in BTC, ETH, ADA and XRP. 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.