With the recent severe run on banks, most investors are arguably wondering what this means for the cryptocurrency market, especially since excessive focus on cryptocurrencies may have contributed to one of these failures. You may have heard that the Federal Deposit Insurance Corporation (FDIC) recently overtook Silicon Valley Bank and Signature Bank. According to TechCrunch, about 30% of the latter’s deposits come from the virtual currency industry.
To be fair, not all is doom and gloom for cryptocurrencies. Notably, precious metals prices have soared in the past week as investors sought safe havens. Therefore, a similar dynamic will emerge for blockchain-based Crypto assets. Fundamentally, there is an argument that federal regulators should have anticipated problems with Silicon Valley Bank before it collapsed. This harsh exposure to centralized fiat currencies may give way to cryptocurrencies.
What worries other investors, though, is that no asset class can afford to ignore broader economic shifts. For example, if the Fed continues to rise, more financial cracks could burst. However, if it becomes accommodative, the subsequent inflation could also severely damage the economy. Investors must proceed with caution as there may not be good decisions to choose from. Here are the key cryptocurrencies to watch.
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I’m not going to dictate what you should do with your money. But just to get it out there, I’ve pared back my exposure to Bitcoin (BTC-USD), taking advantage of the recent surge in crypto to get out at relatively good prices. Fundamentally, the collapse of SVB and now Signature Bank could have a chain reaction. In my opinion, I don’t think the Fed can go aggressively up without breaking the bank. So I took the safe, not sorry approach.
Of course, there is another side to this argument as a free market enterprise. First, the banking fiasco showed the fragility of the centralized monetary system. So, according to the Coindesk column, this could be Bitcoin’s birth moment. In other words, it’s time to give decentralization a chance. Still, it’s worth pointing out that going against the current struggling system doesn’t logically guarantee a successful outcome.
Again, I’ll leave the decision up to you. Those who are bullish on Bitcoin need to see it rise to $30,000 to have a chance of continuing to rise. Otherwise, a drop to $15,000 is not out of the question.
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As with Bitcoin, I decided to reduce my exposure to Ethereum (ETH-USD). Pruning is just that – just pruning, not dumping. Of course, having been involved in the space for many years, I recognize that a noteworthy cryptocurrency can fly higher for any reason or no reason at all. At the same time, I also know that Crypto assets will collapse without warning.
What scares me about cryptocurrencies and other assets is President Joe Biden’s assurances that regulators will step in to strengthen customer deposits with SVB and Signature. Don’t get me wrong – this could be the right step in a sea of bad choices. However, Biden said, “[n]o Losses will be borne by taxpayers. “
I’m afraid I don’t understand how this is possible. With this move, the Fed opened up its balance sheet and engaged in targeted monetary easing—an inflationary move. Over time, as we see in 2022, the American people will forever pay for inflation. While rising prices theoretically boost ETH and other cryptocurrencies, they could seriously damage the economy. Still, if you want to go against the trade, Ethereum has to break through at least $2,000.
USD Coin (USDC-USD)
While “directed” cryptocurrencies like Bitcoin and Ethereum get most of the attention, stablecoins like USD Coin (USDC-USD) are essentially the lubricant for Crypto asset transactions. Without them, mighty Bitcoin is unlikely to reach the scale it has achieved. With stablecoins, investors can convert their fiat-based funds into cryptocurrencies, enabling fast transactions.
Ironically, however, the thesis in support of these stablecoins resides in centralized institutions, as the Wall Street Journal noted. For USD Coin holders, they found that Circle Internet Financial operates the underlying stablecoin. More critically, they also found that Circle had $3.3 billion tied up in Silicon Valley Bank.
Unsurprisingly, USDC lost its peg to the U.S. dollar. Now, at the time of writing, the coin is 99.9% back. But at lows over the past seven days, USDC is trading around 88 cents to the dollar. This is one of crypto’s great takeaways: pure decentralization may not exist. When you’re talking about moving this much money, it’s probably impossible for centralized institutions not to be involved.
While some cryptocurrencies have rallied sharply over the past seven days, one that has struggled to find momentum is XRP (XRP-USD). XRP is hovering around the break-even level, rather disappointingly. Of course, XRP creator Ripple Labs suffers from the vagaries of the courtroom. A few years ago, the U.S. Securities and Exchange Commission (SEC) accused Ripple of circumventing securities laws. Ripple has long maintained that XRP should not be considered a security.
However, the problems plaguing Ripple again date back to the Silicon Valley Bank fiasco. As Cointelegraph reported, Ripple revealed that it had some contact with the collapsed financial firm. Because Silicon Valley clients are assured that they will be whole, XRP should theoretically perform better. Its struggles relative to other cryptos may require caution from potential investors.
Currently, XRP is trading below its 50-day and 200-day moving averages. In order to regain confidence to the upside, the Crypto asset must return to at least the 50-cent level. From there, it has to hit 75 to 80 cents. Otherwise, it could be a long year.
Unfortunately, Cardano (ADA-USD) has been among the more disappointing cryptocurrencies after initially starting its journey with a bang. However, it managed to rise in the past 24 hours. As such, it’s up about 3% over the past week. To be sure, this is progress. However, the problem with ADA centers on its credibility for a long time into the future.
At this point, I’m just holding a small position in Cardano, just in case. Admittedly, though, I’m not expecting much to happen until the next big crypto bull run. That could last for years, if at all. Fundamentally, these smaller Crypto assets offer a possible measure of health. In other words, if Bitcoin jumped higher, you would expect encouraging chart patterns for smaller coins and tokens.
However, ADA is still below its 50 and 200 DMA. Moreover, it is also trading below the former support line, which has now turned into resistance at 40 cents. Cardano must at least clear this hurdle, then. From there, it must quickly build a strong presence at 50 cents. However, in the current economic climate, that seems like a tall order.
One of the reasons for my hesitation about the current state of crypto is the lack of net forward progress among smaller coins and tokens lately. For example, Solana (SOL-USD) found itself trading around $20.45, below its 50 and 200 moving averages, the latter around $22.47. Additionally, Solana has lost nearly 2% over the past week, missing out on the rising enthusiasm of other cryptocurrencies.
To regain credibility and upside momentum, Solana must set a baseline of support at $30. Unfortunately, SOL has struggled to break above the $25 resistance line this year. Getting to $30 will be a tall order unless the bulls expend a lot of energy.
To be fair, a change in the direction of the Fed’s hawkish monetary policy could trigger northbound activity in Solana and other cryptos. However, I am inclined to believe that such an inflationary backdrop will only be a short-term uptick. Recall that when inflation spiked last year, cryptocurrencies collapsed. Moreover, the sell-off intensified when layoffs accelerated as consumers tightened their belts. If anything, caution should be a priority. Nibble the Solana if you must, but keep the powder keg dry.
The original alternative cryptocurrency, I haven’t covered Litecoin (LTC-USD) for a long time. However, it’s worth mentioning now that LTC has seen a worrying chart pattern that could have broader implications for other cryptocurrencies. Therefore, even if you are not a stakeholder of LTC, you should pay attention.
On the one hand, Litecoin has been hit hard in the past week, losing nearly 8% of its market cap. Clearly, it has not enjoyed the same upward momentum as other cryptocurrencies. Second, LTC fell sharply around the beginning of March, first falling below the 50-day moving average, then falling to the 200-day moving average, before bouncing higher. Unfortunately, this action can be a dead cat bounce.
At $81.58 at the time of writing, Litecoin is sandwiched between the 50-day moving average at the top ($91.93) and the 200-day moving average ($71.45) at the bottom. Here, despite the federal government’s support for failing financial institutions, the lack of incentives to drive stock prices higher is the main problem. In other words, the government can’t do anything, but LTC is still in no man’s land.
If you are considering investing in other cryptocurrencies, I would look at Litecoin as a barometer.
At the date of publication, Josh Enomoto held long positions in BTC, ETH, USDC, XRP, ADA, and LTC. The views expressed in this article are those of the author and are governed by InvestorPlace.com Publishing Guidelines.
Josh Enomoto is a former senior business analyst at Sony Electronics where he helped broker major contracts with Fortune Global 500 companies. Over the past few years, he has provided unique and important insights into the investment market and various other industries including legal, construction management and healthcare.
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