The crypto rally is taking a breather on Tuesday.
Bitcoin, the most well-known cryptocurrency, was largely flat at around $56,000. Ethereum, which broke above $4,000 for the first time on Sunday evening, moved slightly lower.
Ethereum has well outperformed bitcoin this year, up more than 400%. That’s more than four times the gains for bitcoin.
“The performance has been outstanding,” Ari Wald, head of technical analysis at Oppenheimer, told CNBC’s “Trading Nation” on Monday. “Take these stats for instance. In ethereum in February there was a 35% pullback. If you bought it right ahead of that drawdown and then you were down 35% but held through, you’d still be up over 100% right now.”
In the case of a similar drawdown last September, an ethereum investor would be up more than 700% at this point, he said.
“This is an extremely volatile currency and traders have to be wary of that. With big upside reward comes big trading risk within that and even if this is going to continue to trend higher it’s going to be extremely volatile,” Wald said.
Quint Tatro, president of Joule Financial, said investors curious about getting into cryptocurrencies should still approach it as part of a well-diversified strategy.
“When I talk to clients about this, we talk about it as part of a portfolio, we talked about it as a very, very small percentage of assets, if they have real currency concerns, if they’re really concerned about hedging currency risk,” Tatro said during the same interview.
Traders, too, should be cautious about relying on traditional metrics to gauge whether to buy or sell, he said.
“If you’re going to trade it, trade it. And I think that you’re going to get into trouble if you’re buying an asset based on maybe technicals or breakout levels and then all of a sudden those rules go by the wayside when they break down, and I’m seeing a lot of that with some people, very shorter term,” Tatro said.
Dogecoin, one of the best-performing cryptocurrencies this year, has had a wild ride. That crypto is up more than 10,000% in 2021, but pulled back nearly 30% from a recent peak.