- Bitcoin should outperform ethereum as inflation picks up, said Nick Cawley, a strategist at DailyFX.com.
- Surging prices benefit bitcoin more than ethereum since the latter isn’t as strong of an inflation hedge.
- Cawley shared five altcoins he’s watching, including highly-touted ethereum rivals.
Months after predicting that bitcoin and ethereum would surge to fresh all-time highs, Nick Cawley, a DailyFX.com strategist with two decades of experience in trading fixed-income products, sees more slow-but-steady gains to come for the two largest cryptocurrencies.
Cawley’s reasoning is three-fold, he told Insider in a recent interview: crypto sentiment remains positive, adoption rates among big-money investors are climbing, and technical setups in the tokens’ charts indicate that their upward trends have legs.
Case in point is a series of higher lows for the 20 to 30 largest cryptocurrencies, Cawley said, which suggests investors are buying dips instead of panic-selling when weakness comes.
“From a trading point of view, ordinary sell-offs are bought back fairly quickly,” Cawley told Insider. “It seems that the market, in some ways, is looking for sell-offs. Some people are actually looking for sell-offs to perhaps get longer, to increase their longer-term holdings.”
But bitcoin’s inflation hedge potential gives it an edge over rivals
Inflation, which hit a three-decade high in the US in October, has “got its claws in the market,” Cawley said. Many investors scrambled to buy gold and certain stocks to position their portfolios accordingly. Others rushed to buy bitcoin, which has risen over 46% since October 1.
The original cryptocurrency has been touted as an inflation hedge because of its capped supply — something Cawley called a “unique selling point” of the token. If inflation runs rampant and lasts longer than government officials expect, bitcoin will likely outperform other assets.
“Forget everything that is said in the US about inflation being ‘transitory,'” Cawley said. “That word has been used in the last six months, and US inflation is at a 30-year high. So, you know, inflation is ingrained at the moment, and it doesn’t look like it’s going to come down in some time. Bitcoin is, and has proved to be, an efficient hedge against that.”
Some bulls have argued that ether, the native token of the ethereum blockchain, may also serve as an inflation hedge because of a protocol implemented in August designed to limit the coin’s supply. Cawley said he doesn’t buy that argument, even though he’s a fan of the token.
Investors who are as concerned as Cawley is about inflation should stick to bitcoin to hedge against higher prices, he said, especially because it has a more promising technical setup than ether, which he said “has faded.” The DailyFX.com strategist wrote in a November 8 note that ether is set for more volatility as it enters “uncharted water[s].”
Five altcoins to watch despite signs of froth
Bitcoin and ethereum have become the gateway drugs to the digital asset market. Once viewed as wildly speculative, bitcoin is now seen as “the boomer coin” because its price swings are so muted compared to smaller cryptos, Liz Young, the head of investment strategy at SoFi Technologies, told Barron’s.
Ethereum’s success inspired wanna-be “ethereum killers” while the popularity of dogecoin, a joke token named after a Shiba Inu dog, sparked the creation of the aptly named Shiba Inu coin. Many of these so-called “hype coins” will be pumped, dumped, and eventually forgotten.
“There will be coins that have the ‘shooting star’ effect and then suddenly fade and probably are never seen again,” Cawley said.
Some see this crypto craze as lighthearted fun that, with a bit of luck, can lead to serious cash. Others warn the trend is a tell-tale sign of an ever-expanding speculative bubble, formed in part by the Federal Reserve’s decision to slash interest rates to zero and flood markets with cash.
“[Investors are] willing to be risk-on because they want to — particularly younger people — want to return capital in a low interest rate environment,” said Michael Sidgmore, the co-founder and partner of Broadhaven Ventures, in an interview with Insider.
Sidgmore acknowledged that there is some “hysteria” in today’s crypto market but added that there is plenty of innovation as well — a sentiment seconded by Cawley. The DailyFX.com strategist said investors are increasingly buying into the stories about what cryptocurrencies can do and have less of a “casino” mindset than they did a few years ago.
Cawley named five altcoins that he’s watching closely, though he can’t formally recommend cryptocurrencies or share price projections for them.
Solana (SOL) and Cardano (ADA) are price-stable ethereum competitors that Cawley said he’s still interested in. Proponents say the two projects can be effective complements to ethereum, if not superior, because they offer lower fees and faster transactions. Another ethereum rival Cawley said he’s been watching is Avalanche (AVAX), a network that can also lap the larger network in terms of transaction executions per second, according to Cointelegraph.
These five tokens have had strong runs this year, but Cawley said that reflects their potential — not a coming crypto bubble. Not one he’s aware of, at least.
“There’s nothing out there that is visible, anyhow, at the moment that should be overly worrying,” Cawley said. “Obviously, with the inherent
of cryptocurrencies, you can never say never.”