- Bitcoin is rebounding strongly but may not reach new all-time highs in 2022.
- Nick Cawley, a DailyFX strategist who’s spent two decades in markets, is cautiously optimistic.
- Here are three altcoins to watch as metaverse hype regains momentum.
Cryptocurrencies will take “two steps forward, one step back” in 2022 as blue-chip tokens rebound from a brutal bear market but struggle to set new all-time highs, says Nick Cawley.
The DailyFX strategist, who’s spent 20 years trading fixed-income products, recently told Insider that the worst of the winter’s crypto selloff is over. But investors may want to wait before rushing to buy bitcoin (BTC) at a 40% discount from record levels, as there will likely be plenty of opportunities for accumulation in what may be a year of choppy trading.
Bitcoin broke through a key level of technical resistance ($39,600) on Friday as it snapped out of a multi-month downward trend, Cawley noted. It’s since appreciated to around $45,000. He believes that holding at these levels may signal a bull flag formation and further strength ahead.
Cawley said bitcoin’s sudden move higher “may be slightly overdone” in the very near-term, which could lead to some consolidation in the coming days, but this recent upswing should calm crypto holders. Bitcoin is the bellwether for investor sentiment in the budding crypto industry.
“This is good news overall on the short-, medium-, and long-term for bitcoin bulls,” Cawley said. “It does show now that the shakeout that we’ve had has kind of finished. I think people have now factored in the worst-case scenario from the macro fundamentals.”
By late January, most cryptos, including bitcoin, had collapsed by at least 50% from their mid-November highs. The weakness came as data showing that inflation had surged to 39-year highs led the Federal Reserve to suddenly shift away from the low interest rate and high liquidity environment that had supported risky assets since the onset of the pandemic.
Ironically, what Cawley thought would be one of bitcoin's greatest strengths — its ability to serve as an inflation hedge — turned out to be anything but. Though he nailed his mid-November prediction about non-transitory inflation, Cawley completely overestimated bitcoin's ability to be a hedge against higher prices, as investors ended up fleeing from the token — not flocking to it.
Now that bitcoin failed the inflation test and "debunked the theory" that it's an effective hedge against price surges, Cawley said that January inflation data, which will be released Thursday, may determine the crypto market's next move.
But no matter how hot or cold inflation comes in, bitcoin may be range-bound through 2022. It would take "something big" for bitcoin to test its near-term trough in the low $30,000s, Cawley said, but barring a sharp uptick in crypto adoption rates or the approval of a spot bitcoin exchange-traded fund, the market veteran doesn't see much more than incremental gains.
"For new all-time highs, I don't think you're going to get there from a technical point of view," Cawley said. "I don't think the charts suggest at the moment that an all-time high is within sight, maybe even this year."
Top cryptos to watch in 2022
Few pockets of financial markets have been hit harder than highly speculative altcoins.
Most non-bitcoin cryptos have imploded after feverish runups last fall, and few have fully recovered. And like bitcoin, Cawley believes it would take a "strong bullish tailwind" for these tokens to regain enough ground to test record levels.
But there are three altcoins that Cawley said have his attention: The Sandbox (SAND), Decentraland (MANA), and Near Protocol (NEAR). He said he doesn't own any of these cryptos — just small amounts of bitcoin and ether — and they aren't formal recommendations.
The Sandbox and Decentraland are among the largest and most direct ways to get exposure to the metaverse — a term for an immersive virtual world where users can play and work. Interest in the space exploded when Facebook rebranded to Meta Platforms, though some of the euphoria has died down, Cawley noted. However, a bullish shift in sentiment as more companies invest in the space could send metaverse-related tokens spiking again.
Both of those metaverse gaming platforms are in their infant stages, and tokens tied to their platforms have lost nearly half their value in recent months. But Cawley said investors with long time horizons may want to consider taking a small flier, "just to have some skin in the game."
"There's no given out there — apart from Apple," Cawley said. "So I think it's just one of those things that if you are looking around and you want maybe a bit of diversification away from bitcoin and ethereum, something like that may hold some interest."
Cawley continued: "If I was looking to diversify into the metaverse, then I'd go for some of the larger companies in the metaverse to start off with. And then you can always over time diversify away from them."
The thesis for Near Protocol is starkly different, given that it's not a metaverse play at all. The Layer 1 blockchain is in a cutthroat competition to provide faster transactions via higher throughput and better interoperability, though Cawley said that it has a strong technical setup.
"The chart on that still looks fairly positive," Cawley said. "You've got pretty much an unbroken set of higher lows, which always sort of encourages you into this sort of a market."