When cryptos soared higher last week, many investors looked to U.S. asset management stalwart BlackRock (NYSE:BLK) as the catalyst. With the firm filing for a virtual currency-based exchange-traded fund, mainstream momentum again seemingly favored the blockchain ecosystem. Still, CNBC believes that it was really the whales or the crypto sector’s heavy hitters that sparked the massive upside.
According to the news agency, “market depth” for cryptos has been sitting at very low levels this year. This term refers to “…a market’s ability to absorb relatively large buy and sell orders. When market depth is low and big players put in orders to buy or sell digital coins, prices can move in a big way up or down, even if the orders are not that huge.”
With depth for key cryptos falling sharply, these digital assets are more susceptible to whales’ influence. More importantly, CNBC points out, retail investors haven’t moved back into the blockchain ecosystem yet. With volume representing a key component of activity in cryptos, market participants should approach virtual currencies with perhaps some healthy skepticism.
Up trend Technical graph of Bitcoin (BTC-USD) in futuristic concept, BITI ETF is a Bitcoin short fund for investors betting against Bitcoin.
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Heading into the late-night hours of Monday, Bitcoin (BTC-USD) gained about 13% in the trailing seven-day period. Although impressive, in the past 24 hours, BTC gained just under 1%. Following a meteoric rise in cryptos – again, likely due to the influence of the whales – the coin has seemingly lost momentum. Rather than representing a discounted buying opportunity, prospective investors should consider the bigger picture.
For one thing, Bitcoin’s relative strength indicator stands at 68.52, indicating a near-overbought status. While this framework doesn’t guarantee imminent downside, investors should be nevertheless cautious. More importantly, volume levels seem quite low for such a robust move over the past week.
What makes me hesitant regarding a full-throated endorsement of Bitcoin at this juncture is the fading volume based on peak buying activity. From January, then March, then April, and now June, peak acquisition volume has trended downward despite the BTC price moving up. Generally, you want to see volume confirm price, which makes Bitcoin somewhat suspect at this hour.
Ethereum (ETH-USD)
Another stylized version of the Ethereum logo
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Another heavily watched asset among cryptos, Ethereum (ETH-USD) prints a similar trajectory to Bitcoin. Over the trailing week, ETH gained almost 8% of its market value. However, in the past 24 hours, the coin slipped about half a percent. With limited activity from retail investors, virtual currency traders should exercise careful discretion here.
Just like the top digital asset, Ethereum’s volume trend relative to its price action presents credibility concerns. For example, a flurry of bullish activity spiked acquisition volume in Jan. of this year. Later, as the U.S. regional banking sector incurred significant headwinds, buy volume again picked up in March. However, the peak metric had a negative differential relative to Jan.
Now in late June, it’s the same story all over again. Yes, ETH prices popped higher. However, this month’s peak buy volume was lower than April’s peak, which in turn was lower than March’s crowning point. It may be another sign that without retail investor support, prospective traders should be prudent.
Tether (USDT-USD)
A concept token for the Tether cryptocurrency.
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Although Tether (USDT-USD) may be a stablecoin – that is, a digital asset pegged to a hard currency – it may provide some clues regarding the broader health of underlying cryptos. Interestingly, data from Stockcharts.com reveals far fewer fluctuations in the back third of this month, which may confirm the overall muted activity from retail investors.
Notably, the month of March saw significant activity – both to the upside and down – which isn’t surprising. When the regional banking crisis materialized, it shined a glaring spotlight on stablecoins. Specifically, the enterprises undergirding these cryptos had to have paper assets justifying the pegging to hard currencies.
On the positive end, many contrarians saw the volatility of regional banks as confirmation of the legitimacy of decentralized assets. Therefore, these folks converted their paper wealth to Tether. Right now, we’re just not seeing significant movement in Tether, which might indicate that retail investors may be sitting on the sidelines. Therefore, you might not want to bet too heavily on the major cryptos just yet.
Litecoin (LTC-USD)
Silver Litecoin coin facing forward on a pile of litecoins
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One of the biggest relative winners among cryptos over the past week has got to be Litecoin (LTC-USD). Although the original alternative cryptocurrency or altcoin, Litecoin faded significantly as other assets like Ethereum slotted in behind Bitcoin in the market capitalization race. If you watch auto racing, LTC has become the equivalent of being outside the draft or DRS range.
However, over the past one-week period, the virtual currency gained nearly 14% of market value. And in the past 24 hours, it’s up almost 2%. As a result, Litecoin finds itself just outside the top 10 cryptos based on market cap. Now, the question is, can it sustain or even build on this momentum?
I suppose you could make a very loose argument that LTC might benefit from a cup-and-handle pattern that materialized this month. However, my concern still goes back to volume. In March, acquisition volume spiked. Since then, this metric has been relatively muted despite June’s reactionary rally. As a stakeholder, I like LTC’s long-term potential. However, I would tone down an aggressive entry here.
Cardano (ADA-USD)
A Cardano (ADA) going in front of a dollar bill.
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Following a sharp loss of market value earlier this month, Cardano (ADA-USD) apparently hit a bottom. Over the past one-week period, ADA gained more than 8% of market value. However, sustainability has now become a serious question mark. In the past 24 hours, ADA slipped over 2%.
As with other cryptos, Cardano enjoyed peak acquisition volume earlier this year. However, since Jan., buying volume at the highest point in subsequent months began fading. Despite the strong performance over the past week, volume was relatively weak compared to the prior months. Also, peak divesting volume soared on June 10, suggesting wider skepticism toward ADA.
Like in other market cycles, Cardano continues to be a laggard compared to other cryptos in its neighboring market cap zone. While rival virtual currencies have jumped above their 50 and 200-day moving averages, ADA sits well below these benchmark gauges.
Given that nothing much has changed, I would be careful about heavy exposure to Cardano.
Solana (SOL-USD)
Macro shot of a physical coin from the cryptocurrency Solana (SOL-USD)
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Although Solana (SOL-USD) enjoyed a solid performance during the past seven days, the next few sessions could be critical. For the week ending the final hours of June 26, SOL gained just over 8%. However, in the past 24 hours, the coin gave up about 2% of its market value. Unfortunately, where Solana is perched right now, the bulls really need to push the value higher and right quickly.
For one thing, SOL presently trades hands at $16.48 per unit. That’s 12% below its 50 DMA and 16.5% below its 200 DMA. As major benchmarks for nearer-term and longer-term market health, spending too much time below could spark bearish curiosity.
Second, long-term horizontal support lies at around $20, which roughly corresponds to where SOL’s 200 DMA stands. Quite simply, the bulls need to push the Solana price up to this minimum threshold. Otherwise, SOL could be one of the uglier names among major cryptos.
Polkadot (DOT-USD)
Golden Polkadot (DOT-USD) dot coin cryptocurrency on computer electronic circuit board background
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Presently residing as number 12 in terms of the market cap against all other cryptos, Polkadot (DOT-USD) put on an impressive performance on paper. In the trailing week, DOT gained nearly 13% of its market value. However, in the past 24 hours, Polkadot slipped 2%, presenting confidence concerns.
Even worse, its downwardly sloping 50 DMA has effectively imposed upside resistance at around $5.09. Coming in above is the 200 DMA, which stands at $5.70. Thus, Polkadot faces significant challenges when it comes to upward mobility. It’s hanging below critical thresholds, for one thing. Next, the lack of retail investor involvement may stymie the bulls’ efforts.
Here, a little whataboutism might become significant. Stated differently, the existence of potentially better opportunities could leave Polkadot in the shadows. Further, this dynamic could have a disproportionate impact on DOT. Specifically, volume skyrocketed in Feb. of this year. Since then, both buying and selling activity exponentially diminished. Even the most recent rally failed to spark interest, which could be problematic for the decentralized asset.
On the date of publication, Josh Enomoto held a LONG position in BTC, ETH, USDT, and LTC. 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.
