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Introduction: Heading into June 2021, the cryptocurrency market cap was hovering around $1.68 trillion. In a market comprised by over 10,100+ cryptocurrencies, it can be challenging to pick winners from the batch. Bitcoin (BTC), the world’s premier digital currency makes up between 40% – 45% depending on its volatility from day-to-day.
All other cryptocurrencies – altcoins – make up between 55% and 60% of the entire market, spearheaded by Ethereum (ETH), Tether (USDT), Binance Coin (BNB), Cardano (ADA), Ripple (XRP), and Dogecoin (DOGE). These digital currencies make up 31% of the entire market. Together with Bitcoin, the top 7 digital currencies account for 70% – 75% of the market. That means there are almost 10,100 cryptos making up 25% – 30% of the market’s value at any given time.
How to Select a Cryptocurrency for Investment Purposes?
Drawing parallels: Forex traders understand a thing or two about volatility, liquidity, and trading volumes. The forex market is the world’s most heavily capitalised market, dwarfing stocks, commodities, indices, and crypto combined. On a daily basis, an estimated $5 trillion – $6 trillion in daily forex trades takes place. This gargantuan market casts a big shadow over all other financial instruments, and rightly so.
Cryptocurrency is not like forex – it is not backed by central banks, it is not regulated by governments, and it is not fiduciary currency. It is at best a highly speculative financial instrument that is characterised differently by various branches of government*. Many investment gurus dismiss cryptocurrency as a store of value since it is way too volatile. From day-to-day you literally don’t know how much these types of financial instrument can rise or fall.
Making Crypto Investment Decisions Based on Price Movements
Consider the recent price movements of Bitcoin. On 1 January, Bitcoin was trading around $29,246 per unit BTC. It rapidly appreciated through February approaching a price ceiling of around $58,000 before a reversal took place in early March. Then the Bitcoin boom continued unchecked through mid-April 2021.
It touched $63,000 +, and reversed sharply following two critical events. The first was a comment by Tesla CEO Elon Musk to the effect that his company would no longer be accepting Bitcoin for payment purposes since it is not an eco-friendly option.
The price of Bitcoin plummeted in the days that followed. Its downward trajectory was exacerbated by comments coming out of China that various government bodies were going to clamp down on Bitcoin and other cryptocurrency in a big way.
From highs of $63,000 +, Bitcoin plummeted beneath the critical $30,000 price floor in a matter of weeks. Technical analysis of Bitcoin’s price movements tends to suggest that it’s a bad short-term investment. Indeed, it appears to be so. Yet, the inherent volatility of this digital asset is its saving grace.
Is the Crypto Bubble About to Burst? Or Did It Already Burst?
Speculative sentiment is a major driver of crypto prices. If markets are feeling bullish, prices balloon out of control. The difference between the 2020/2021 crypto boom and the 2017 crypto boom is institutional investors. Major companies from around the world have come to appreciate the value of blockchain technology and crypto for transforming the FinTech industry, transactions processing, and value propositions.
Massive capital flows into crypto markets are now commonplace. It is unlikely that a rout the likes of which we saw in 2017/2018 will repeat. What is happening is a series of market corrections, and consolidations at higher lows and higher highs.
The much hyped-crypto bubble is not about to burst per se, it’s trying to find an equilibrium level which is sustainable given the current appetite for these digital assets. Of course, there is no soothsayer who can predict with any degree of certainty how Bitcoin, Ethereum, Tether, Binance Coin, Cardano, Ripple, or Dogecoin is going to perform in the future.
That’s why day traders rely on market pulses; microblogging platform soundbites, social media news, sentiments of key market players (tech entrepreneurs, central bank governors, governments, crypto aficionados, and industry leaders, and trading brokers). Short-term price movements are key to making profitable trades.
All manner of technical and fundamental analysis is used to make qualitative/quantitative assessments of asset prices. This is done to ascertain whether the crypto assets are undervalued or overvalued. Analysis is particularly useful for trading purposes. In the next section, we are going to take a look at the top 7 cryptocurrencies to invest in, based on trading volume, price movements, popularity, and speculative sentiment.
Bitcoin (BTC)
As the world’s premier digital currency, Bitcoin shapes the direction of the entire cryptocurrency market. It would be disingenuous to write off Bitcoin for trading purposes. When Bitcoin rallies, this invariably lifts the market. When Bitcoin bottoms out, altcoin typically follows suit. It’s a strong correlation, and one that should be followed when trading decisions are made.
Decisions to buy or sell Bitcoin are highly dependent on the timeframe under consideration. At the time of writing (May 28, 2021) the 4-hour technical analysis for Bitcoin was a strong sell, with oscillators indicating a sell, and moving averages representing a strong sell. The picture changes dramatically when we extend the timeframe to 1 month. From this perspective, Bitcoin is perceived as a buy, with moving averages indicating a strong buy.
Ethereum (ETH)
Heading into June 2021, Ethereum (ETH) is equally bearish, at a price of $2,490. As the world’s #1 blockchain-based ecosystem for creating decentralised apps, Ethereum has many powerful practical applications that are being used by FinTech enterprises, banks, and financial institutions around the world. It is much more practical than Bitcoin, and prices reflect its value proposition to traders. At the time of writing (May 28, 2021) the short-term technical analysis of Ethereum indicated a strong sell. This is in sync with Bitcoin expectations.
Tether (USDT)
Tether (USDT) trades on par with the US dollar. In that sense, it is a stablecoin, with minimal fluctuation about the mean. Given the near-zero deviation over time, Tether is actually considered short-term bearish at this juncture. This is not surprising, given the state of the crypto market. The technical indicators reflect a sell over 4-hour time frames, but the picture is transformed to a buy/strong buy over the next month. Day traders following these technical indicators would likely short Tether (USDT) in expectation of minuscule price drops.
Binance Coin (BNB)
Binance Coin (BNB) is the mirror image of Bitcoin over the short-term. On May 28, 2021, this digital currency was trading at $324 per unit, with strong sell overall indicators for day traders. All the moving averages were bearish, with the exception of the Ichimoku Cloud Base Line. For day traders the money is in shorting BNB. Projecting ahead, sentiment is certainly more bullish over the next month through June. This indicates that further price declines followed by buying the dip are possible.
Cardano (ADA)
Cardano (ADA) is yet another mirror image of the top-tier cryptocurrencies on the list. It’s worth pointing out that it is possible to generate an ROI on digital currencies by hedging against them, by shorting them. This is precisely what day traders are doing with Cardano (ADA) heading into June. It is a strong sell across the board, with analysts going bearish on ADA. As we project ahead, throughout June sentiment turns bullish.
The 10, 20, and 30-day EMAs and SMAs are bullish. It is foolhardy to assume that any form of technical analysis of digital currencies will play out as expected. The highly speculative nature of this market warrants close scrutiny at all times. The market can literally turn on a dime, upending sentiment instantly. The recent volatility of ADA is worth pointing out, since it traded at negligible price levels since 2018, before a meteoric price rise January 2021, and a short-term reversal in May. The indicators are certainly trending bearish, but there’s enough daily whipsaw movement for upside and downside ROI.
Ripple (XRP)
Ripple (XRP) came in for some tap in late 2020 as the SEC railed against it. The digital currency has recovered somewhat and is trading at around $0.85 per unit XRP. The short-term expectations are bearish, with strong sell sentiment in the markets. Extrapolating forward, the mood is certainly more optimistic, with the 10, 20, 30, and 50 SMAs and EMAs reflecting buys.
The Ripple chart over the past 7 days is bearish, with dramatic price fluctuations about the mean. There appears to be a consolidation around the $0.96 level in recent days, and Bollinger Bands (0.70 – 1.21 – 1.72) as at May 28, 2021 indicate that the current price of $0.85 is stable, and not overbought or oversold. Traders will do well to assess each of the aforementioned cryptocurrencies with technical indicators like Bollinger Bands to gauge potential upswings or downswings.
Dogecoin (DOGE)
Dogecoin is an interesting cryptocurrency to trade, particularly since it’s often discussed by Tesla CEO, Elon Musk. Heading into May 2021, this digital currency enjoyed a substantial boost over successive days in April, followed by a slight reversal and then consolidation around the $0.30 – $0.40 level. For the year-to-date, DOGE like other cryptocurrencies is up sharply. Very little happened from February through mid-April, until comments by Elon Musk on Twitter helped to fuel a rally in the price. Bollinger Bands (0.2502 – 0.496 – 0.5889) tend to suggest the current price of $0.3066 is well within the limits, if not slightly oversold. Should the price track beneath the lower Bollinger Band, traders might expect a bounce to the upside.
In Summary
The crypto market has sold off en masse heading into June. Significant headwinds from China, Tesla, and temporary reversals in the widespread acceptance of cryptocurrency have played their part. It appears that key market players, and impending regulations are tightening the screws on the runaway growth of cryptocurrency. In truth, this asset class is extremely volatile. That much we can certainly appreciate. CNBC recently published a cryptocurrency returns chart for 2021, and significant declines have taken place in the two main cryptos, ETH and BTC. While disappointing for crypto bulls, this is par for the course. Provided institutional support remains, we could see reversals. There is a shift away from speculative assets which are extremely risky, towards more safe-haven assets such as gold, and interest-bearing financial instruments.
Trading incurs a high level of risk and can result in the loss of all your capital.
