After much hype and anticipation, the so-called Merge — a transition to a more efficient blockchain consensus mechanism – materialized successfully, though the impact to cryptos left many market participants wanting. Fundamentally, as I mentioned about a month ago, one of the key risks regarding this event was the phenomenon known as “buy the rumor, sell the news.” This leaves us with a lot of cryptos to watch in the days ahead.
With everyone betting on the same horse, the subsequent rewards for gamblers would likely be limited. Moreover, market valuations tend to rise on what could be, not what is. Certainly, the Merge represented a well-known fact. Therefore, cryptos likely priced in its success before the actual disclosure. Now that the big game is over, no need exists to buy tickets for it.
On a broader scope, the Federal Reserve may impose the sternest arbiter of digital asset trajectory. Late last month, Fed chair Jerome Powell mentioned in his policy speech at the annual economic symposium at Jackson Hole, Wyoming that American society must accept “some pain” now to avoid greater pain later. When hotter-than-anticipated inflation clouded the narrative, the central bank presumably must act even more aggressively.
That might crimp cryptos, which means there are plenty of cryptos to watch carefully as the dust settles. Keep an eye on these seven cryptos:
It’s an obvious statement. This year, Bitcoin (BTC-USD) went on a ride, and not necessarily a pleasant one. At its peak, BTC knocked on the door of $70,000 in November of 2021. Recently, BTC slipped below $19,000 though it went on a mini-rally in the evening hours of Sept. 19. Still, when looking at the comparison, that’s a steep decline.
“If you’re investing for the next five to 10 years, this is just an ordinary blip in the marketplace, and you ignore it,” Ric Edelman, founder of Edelman Financial Services, told CNBC.
“It’s a really dynamic moment in the market,” Matt Hougan, CIO of Bitwise Asset Management, told the business news agency.
For truly bullish investors, the price point between $18,000 to $22,000 may be a long-term lucrative entry point. However, with so much fundamental pressure (i.e. prospect of higher interest rates) impacting all risk-on assets, it’s better to nibble your way into this discount. Again, anything and everything can happen in cryptos.
Generating plenty of buzz heading into its Merge event, Ethereum (ETH-USD) dazzled investors before the actual transition. On Sept. 10, ETH closed in on the $1,800 level. At the time of writing, the price sits at roughly $1,382. Indeed, a few hours prior to this writing, ETH briefly dipped below the $1,300 level, sending jitters across cryptos.
Over the trailing week, Ethereum slipped 19% below parity. Conspicuously, this performance lags every other coin or token listed in the top 10 cryptos by market capitalization. I’ve said it here, I’ve said it before and I’ll say it again: Buy the rumor, sell the news. It may be a painful lesson for some but it’s better to learn it now than not at all.
Moving forward, I have concerns about ETH. Recently, TechCrunch labeled the Merge as “way overhyped.” Fundamentally, the transition to proof of stake (PoS) raises concerns about meritocracy. Effectively, only those participants that staked their ETH coins for the Merge project will be able to validate blockchain transactions and thus receive cryptos as a reward.
As with BTC, you could nibble at Ethereum — but nibbling right now is about as aggressive as I would go.
Just like the quarterback represents the heart and soul of a football team, Tether (USDT-USD) undergirds the stability of cryptos. A stablecoin or digital asset pegged to a hard currency (usually the U.S. dollar), Tether acts as the facilitator of lightning-fast transactions. While exchange services allow people to convert fiat to virtual currencies, the process may be cumbersome. With Tether, you already operate in wild crypto land.
Now, stablecoins don’t stay perfectly aligned on a one-to-one basis with dollars. In some cases, they can dip below or spike above (within the scale of minutia) their target currency. Investors should note that even with Tether, the Merge caused USDT to hit a month high on Sept. 9. Since then, USDT traded noticeably lower than its peak valuation.
Does this dynamic represent a cause for concern? Maybe, maybe not. However, given that cryptos currently struggle against a possible deflationary environment — brought on by the Fed’s presumed monetary tightening — not much incentive exists to expose your “real” dollars for decentralized digital ones.
Ethereum Classic (ETC-USD)
For me, the most curious name among cryptos to watch this week has to be Ethereum Classic (ETC-USD). To get everyone on the same page, Ethereum Classic represents the original ETH blockchain network; hence the suffix Classic. However, during the initial launch phase, ETC suffered a cyberattack. In order to correct the breach, most users and developers opted to initiate a hard fork from the original chain.
Still, a number of blockchain advocates wanted to maintain the original chain to stay true to the Ethereum ethos. Interestingly, the community undergirding ETC remains committed to its original consensus mechanism. Per Coinmarketcap: “Ethereum Classic has no plans to convert to a proof-of-stake (PoS) mining algorithm.”
Wagering on Ethereum Classic carries risks because the underlying network suffered multiple cyberattacks. At the same time, improving security protocols and the meritocratic proof-of-work (PoW) mechanism — which rewards raw computing power over staking volume — could intrigue investors of cryptos down the line.
As of the evening of Sept. 19, XRP (XRP-USD) ranks as the only digital asset, not including stablecoins, that posted a positive return over the trailing seven days. Even comparing stablecoins, XRP gained nearly 8% while the former category sees gains a minuscule amount over breakeven. What accounts for this good news? A potential implementation of legal clarity.
According to InvestorPlace financial news writer Brenden Rearick, both Ripple Labs (the originator of the XRP coin) and the U.S. Securities and Exchange Commission (SEC) have filed for summary judgment over their court case. As you may recall, the SEC filed suit against Ripple, claiming that it used XRP to subvert securities laws.
Rearick stated: “Regulating the market is a careful balancing act. Agencies must protect investors, punish criminals and do it all without stifling innovation in the space.”
If Ripple receives legal clarity for the XRP coin, it could set a precedent for other cryptos. Still, legal dramas can evolve in myriad ways. Therefore, nibbling on XRP probably remains the wisest idea if one is intent on purchasing it.
Moving forward, investors don’t have to take the dour performance of cryptos lying down. Instead, the red ink opens doors to consider virtual currencies that appear promising. One great example is Filecoin (FIL-USD).
Just from a market sentiment perspective, it appears that much of the negativity has been priced in for FIL. At the time of writing, each coin trades hands for about $5.34. At the low point of its history, Filecoin slipped to around the $2.40 level. Worse comes to worst, I suppose that Filecoin could plunge 56%. However, it seems to be holding the horizontal support line at $5.10 rather well.
Fundamentally, the underlying innovation presents an attractive profile for investors. Essentially, Filecoin democratizes the process of file sharing. Those who wish to provide extra storage space to users can do so. In exchange, they receive cryptos for their troubles. On the other hand, those who need storage space can find it. And they have the added bonus of supporting a truly decentralized ecosystem. This utility and use case makes this a prime contender among cryptos to watch going forward.
Though well outside the top 10 in market cap, Zcash (ZEC-USD) nevertheless presents a respectable profile. Focused on privacy and anonymity — along with rapid-fire transaction speed — Zcash will likely grow in relevance assuming cryptos further integrate into the mainstream consciousness.
Fundamentally, Americans (and likely other world citizens) care deeply about online privacy. According to a Pew Research Center report, a “majority of Americans believe their online and offline activities are being tracked and monitored by companies and the government with some regularity.” Thus, making transactions through a secure and anonymous payment protocol should be an attractive proposition.
Also, another Pew report noted that half of Americans decided not to use a product or service because of privacy concerns. Therefore, anonymity isn’t just some buzzword that ties to a fleeting or nonsensical concept. It carries significant economic implications. Being on the right side of the equation makes Zcash rather interesting for the speculator.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, ETC, and XRP. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.