When it comes to cryptocurrencies, it hasn’t been easy this year. The group exploded higher a few months ago, but like a sugar high, came crashing back down. There’s been no escaping it, either. The bear market has enveloped everything from Bitcoin (CCC:BTC-USD) to Ripple (CCC:XRP-USD).
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It’s even taken down Microstrategy (NASDAQ:MSTR) and Coinbase (NASDAQ:COIN). In fact, the only Bitcoin or crypto-related stock that I can think of that hasn’t paid the price is Square (NYSE:SQ).
But that doesn’t really matter at this point. What’s done is done and we need to be continuously searching for new opportunities. Bear markets and pullbacks offer ample opportunity, as I have noted in the past.
However, cryptocurrencies are a bit different. We can’t measure cash flow or revenue growth like we can with a normal entity. As a result, we have to lean more heavily on sentiment and the technicals. Further, we have to understand that this group will be more volatile — in both directions.
That means multi-fold moves to the upside and 50%, 60% or deeper haircuts on the downside when the tide turns. Let’s look at Ripple.
Trading Ripple
Again, this group tends to be volatile and Ripple is no exception to that observation. Notice how it rallied more than 800% from the start of the year to its highs in mid-April before being decimated on the downside. That said, the crypto does have some positives despite being down 68% from the highs.
Shares continue to bob around the 60- to 63-cent range, which has been support. Further, it continues to hold the 50-week moving average. Unfortunately though, we’ve seen the 200-day moving average turn from support to resistance. Additionally, the 21-week moving average has remained as resistance, pressuring Ripple lower.
So what is this “decent chart for aggressive investors” all about?
We either need to see a large flush to the downside or a stronger rotation up through some of these key measures.
Back above the 21-day moving average would do wonders for Ripple, putting the 200-day moving average back in play. Over 75 cents and the 50-day and 10-week moving averages are on the table. Above that and $1 could be within range.
That’s the rotation trade and there are some notable hurdles in the way. For the pullback trade, let’s see how Ripple handles the 50-cent area and the 50-week moving average. Aggressive dip buyers may feel compelled to take a shot down here for a bounce trade. With a strong enough bounce, perhaps the rotation portion of the trade can come to life after a shakeout.
Should 50 cents fail as support and Ripple doesn’t reclaim this level, the mid-30 cents could be in play.
Right now, the bears are outmuscling the bulls. Don’t lose sight of that even though we’re looking for opportunities. Don’t be complacent: We need a deeper discount or proof via rotation.
So, What am I doing With XRP?
I am skeptical of the cryptocurrency market. I know die-hard crypto fans and long-term bulls will want to filet me over that, but it’s the truth.
For investing, I focus on identifying high-quality, high-growth companies, as well as technical analysis. The former allows me to identify value in entities despite high valuations — sounds hypocritical, I know — but the latter allows me to be bullish on cryptos when the charts tell me to.
I can see a future where digital currencies play a larger role. However, it’s hard to imagine the world allowing it to displace fiat currencies. At least for the foreseeable future.
In that world though, I picture a few cryptos dominating the space and those are the ones that dominate it today. Bitcoin, Ethereum (CCC:ETH-USD) and extensions of those larger assets.
For Ripple, perhaps it too has a part to play in all of this. When the technicals turn more bullish, I will turn too. But for now, I am avoiding Ripple and the smaller cryptos. If I’m buying consistently into the teeth of this bear market, I’m doing it with the names that are most likely to survive.
On the date of publication, Bret Kenwell did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell.