Cryptocurrencies have lengthy puzzled conventional inventory analysts. How can an asset class with no earnings, dividends, or basic worth be price something greater than zero?
But right here we’re. Bitcoin (BTC-USD) is price nearly $1 trillion. $75 million price of non-fungible tokens (NFTs) trade hands daily. Even “meme” cash are returning. Speculators are naturally drawn to rising costs, and their shopping for stress typically sends costs even increased, whatever the fundamentals.
Right now, a brand new cryptocurrency has captured speculator curiosity. Since October, costs of Solana (SOL-USD) have risen from the $20 vary to almost $100, making it one of many best-performing large-cap cryptos in the marketplace. The FTX scandal that plagued Solana is fading from the market’s collective reminiscence, and the high-quality cryptocurrency continues to carry a powerful technological lead over rivals.
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May Solana, subsequently, turn into the following Bitcoin?
Solana Costs: Utilizing Technical Evaluation
To reply this, I flip to technical evaluation — the usage of pricing and different knowledge to find out investor sentiment.
We all know from historical past that technical evaluation can work in sure circumstances. Many high-risk moonshot corporations (equally with no earnings, dividends, or basic price) observe predictable patterns that technical analysis strategies can exploit. And machine studying will also be used to sniff out patterns with startling efficiency. (In that specific research, I present how neural networks can pick Bitcoin trades that return 25% on common!)
Fortuitously, you don’t want a level in knowledge science to seek out patterns that work. You solely have to know the instruments and property you’re working with.
Think about Bitcoin, a coin that sometimes “breaks out” when investor curiosity is excessive, after which flatlines when it fades from headlines. Right here, I’ll use a MACD Crossover Strategy — a technical technique notably good at discovering “breakouts” whereas ignoring sideways actions.
As you may count on, the MACD technique does exceptionally effectively on Bitcoin. Since 2013, the system has returned 4 instances greater than a buy-and-hold technique, even with out brief positions. (The flat orange strains symbolize instances the place the technique sells its Bitcoin and holds money).
The identical is true for Solana. Although the MACD system didn’t seize all of Solana’s upside in the course of the 2021 crypto craze, it was sufficient to outperform the buy-and-hold technique over the long term. The MACD system would have offered Solana in December 2021 (represented by the flatlining orange line) and saved traders totally on the sidelines to return out far forward.
What Does Technical Evaluation Say About Solana Right now?
Since October, the MACD indicator has been decidedly bullish on Solana. The MACD line (blue) stays above zero, and the hole between the MACD line (blue) and sign line (crimson) stays better than the 0.015 threshold. This hole is essential to keep away from sideways buying and selling.
That tells us that markets stay bullish about Solana’s prospects. The cryptocurrency has solely traded above its present stage 31% of the time, when you modify for costs. And historical past tells us that the MACD line is a robust predictor of future positive aspects.
Nonetheless, astute readers will discover that the MACD “energy” has dropped off since peaking in December. Costs have begun to chill off in latest weeks. And utilizing the identical graph for Bitcoin exhibits that the world’s largest cryptocurrency has rebounded extra strongly than its smaller rival.
Collectively, that tells us that markets imagine Solana remains to be not Bitcoin. Bitcoin stays far forward, each in shopper adoption and potential regulation, and its rising costs replicate that sentiment. For those who had to purchase only one crypto, it ought to most likely be Bitcoin.
What’s Subsequent for Solana?
Historical past tells us that Solana stays a “purchase” at present costs. The cryptocurrency’s robust fourth quarter means its MACD sign stays above zero. And investor curiosity stays excessive; traded volumes up to now week stay 7 instances increased than the typical in 2023.
Solana noticed the same sample emerge in September 2021, when the cryptocurrency’s MACD line dropped from 30 to 1.9 earlier than accelerating again to 22. (Its value would rise from $164 to $220 throughout that reaccelerating interval).
However even in 2021, Solana’s second surge was far smaller than its first. When asset costs are excessive, it takes way more recent cash to ship values even increased.
This time round appears to be like no completely different. Costs of Solana have already risen 5X since October, and Solana’s sagging MACD determine comes whilst pleasure over Bitcoin ETFs is rising.
In 2021, I really useful traders buy $500 of Dogecoin (DOGE-USD) to expertise the meme mania firsthand. Costs of Dogecoin would ultimately rise fivefold on excessive investor curiosity. This time round, nevertheless, I’m urging way more warning. Although the technicals counsel that Solana will grind increased, traders ought to nonetheless do not forget that it pays to attend for the perfect alternatives.
On the date of publication, Thomas Yeung didn’t have (both immediately or not directly) any positions within the securities talked about on this article. The opinions expressed on this article are these of the author, topic to the InvestorPlace.com Publishing Guidelines.
Tom Yeung is a market analyst and portfolio supervisor of the Omnia Portfolio, the highest-tier subscription at InvestorPlace. He’s the previous editor of Tom Yeung’s Revenue & Safety, a free e-letter about investing to revenue in good instances and defending positive aspects in the course of the unhealthy.
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