This article was written exclusively for Investing.com
- Bitcoin approaches the low for 2021 on June 22 - Ethereum falls below the $1700 level
- The number of tokens continues to rise even as the market cap declines
- AAVE is 28th leading cryptocurrency
- Amp is number 29, with a slightly lower market cap than AAVE
- The warning is the same - Only invest what you are willing to lose
On Apr. 14, when Bitcoin rose above the $65,000 level, the calls for $100,000 and higher dominated the financial airwaves. Bull market action can make the dubious committed bulls. Jamie Dimon, the chairman and CEO of Chase called Bitcoin a fraud a few short years ago and threatened to fire any Chase trader who bought the digital currency. Over the past months, the CEO swallowed his pride and words, allowing the bank’s top clients to include Bitcoin and other digital currencies in portfolios.
Bitcoin and many digital currencies reached highs the day the NASDAQ listed Coinbase (NASDAQ:COIN), the crypto trading platform. The stock jumped to nearly $430 per share on its first trading day, even though the reference price was $250 per share. COIN’s market cap reached almost $100 billion, more than either the CME (NASDAQ:CME) or ICE (NYSE:ICE), two well-established market exchange platforms.
Gravity can be a powerful force in markets. After a few tweets from Tesla's (NASDAQ:TSLA) Elon Musk objecting to the carbon footprint left by Bitcoin miners, China cracked down on the cryptocurrency asset class. The Chinese are preparing to release a digital yuan and are likely limiting competition. Moreover, like all governments, China will do everything within its power to control the money supply. Cryptocurrencies threaten the government’s power as money is a critical control issue.
Bitcoin approached the low for 2021 on June 22 - Ethereum falls below the $1700 level
Since mid-May, the price action in Bitcoin and cryptocurrencies has been nothing short of carnage.
Source: CQG
The weekly chart shows the move from $65,520 in mid-April to a low of $28,800 on June 22. The low in 2021 was $28,440 in early January. After reaching the low on June 21, Bitcoin bounced and traded at the $33,000 level later during the session.
Ethereum, the second leading cryptocurrency, also fell dramatically since reaching its peak at $4406.50 in mid-May.
Source: CQG
The weekly Ethereum chart shows the drop to a low of $1697.75 on June 22. Ethereum bounced back over the $1900 level on the day it made the latest spike low. Ethereum traded to the lowest level since late March.
Bitcoin and Ethereum are trading at less than half the prices at their highs in mid-April and mid-May.
The number of tokens continues to rise even as the market cap declines
At the end of 2020, a total of 8,153 different cryptocurrency tokens were floating around in cyberspace. At the end of Q1 2021, the number rose by 10.9% to 9,045. As of June 22, it was 16.8% higher than at the end of Q1 at 10,561 tokens. The price action in April and May that took Bitcoin and Ethereum to all-time highs prompted issuers to bring more cryptocurrencies to market.
Meanwhile, the overall asset class’s market cap peaked at well over $2 trillion over the past months. The level stood at just above the $1.3 trillion level as of June 22. Bitcoin and Ethereum account for 64.2% of the market cap. The market caps of many of the other over 10,500 tokens have declined alongside Bitcoin and Ethereum over the past weeks.
AAVE is the 28th leading cryptocurrency
AAVE (AAVE) is a decentralized money market that operates on the Ethereum blockchain. AAVE allows users to lend and borrow a range of crypto assets. AAVE’s website describes it as a “non-custodial liquidity protocol for earning interest on deposits and borrowing assets.”
As of June 22, AAVE’s market cap was at the $2.674 billion level, with the crypto trading at around the $214 per token level.
Source: CoinMarketCap
As the chart highlights, AAVE reached a low of around $26.20 in November 2020 and a high of $643.07 in mid-May 2021 when Ethereum peaked. The crypto moved over twenty-four and one-half times higher from late 2020 to the May 2021 high. At the $214 level on June 22, AAVE was one-third the price at the highs as the crypto underperformed both Bitcoin and Ethereum during the price correction.
Amp is number 29, with a slightly lower market cap than AAVE
Amp (AMP) is a platform for collateralizing asset transfers. Amp’s website says it provides cryptocurrency assets “instant, verifiable assurance for any real-world application.” AMP has smart contract features for collateral.
As of June 22, AMP was the 29th leading cryptocurrency right behind AAVE, with a $2.633 billion market cap at $0.06343 per token. Amp and AAVE have switched places on the leader board over the past days.
Source: CoinMarketCap
The chart illustrates AMP’s price range from a low of $0.005748 in late January 2021 to a high of $0.1179 on June 17. The price recently halved in value even though AMP reached its peak after Bitcoin and Ethereum had already corrected from their April and May highs.
The warning is the same - Only invest what you are willing to lose
The first six months of 2021 have been an exciting and volatile time in the cryptocurrency asset class. Prices skyrocketed before gravity hit the cryptos, nearly cutting the overall market cap in half.
Cryptos offer more value at the current prices, far below the recent highs, and value-seeking investors could be using the correction to scoop up some of the tokens. Meanwhile, the risks remain high in the volatile asset class. Invest only what you can afford to lose, as most of the over 10,500 cryptos will likely wind up as dust collectors in computer wallets. There are diamonds in the rough out there in cyberspace, but the risks remain high even after the latest price corrections.
As we learned earlier this year, parabolic bull markets can take prices higher than rational, reasonable, or logical levels. Corrections can crush prices. It is impossible to pick highs during bullish price moves or lows during corrections or in bear markets.
Having some exposure to the cryptocurrency asset class in portfolios makes sense as the means of exchange reflect technological advances in finance. However, only invest what you can lose because there are many more pieces of coal than diamonds floating around out there.