The ongoing bear market in bitcoin is showing no signs of ending anytime soon, JPMorgan said in a note on Wednesday.
The bank is looking for indications that the worse in bitcoin’s price decline may be behind us, but in order to argue that the bear market is over, JPMorgan wants to see bitcoin’s valuation share of the entire cryptocurrency market rise to above 50%.
“We believe that the share of bitcoin in the total crypto market would have to normalize further and perhaps rise above 50% (as it did previously towards the end of 2018) to be more comfortable in arguing that the current bear market is behind us,” JPMorgan explained.
Bitcoin’s valuation share of the entire cryptocurrency market peaked near 70% earlier this year. It currently stands around 46%, according to the bank. Not helping bitcoin is the continued unwind in positions by momentum traders, the bank noted.
Additionally, JPMorgan is looking for increased uptake in bitcoin by institutional investors. And while some institutions like Ark Invest and MicroStrategy have been buying bitcoin in recent weeks, these purchases are not as encouraging as they might appear, according to JPMorgan.
“These institutional announcements are far from encouraging as they do not reflect new entrants, but rather existing investors with a vested interest in propping up bitcoin prices,” JPMorgan said.
Those purchases by ARK Invest have come around the key $30,000 level, which is viewed as an important level of technical support that could dictate the future direction of bitcoin prices. On Wednesday, bitcoin successfully tested that level and surged as much as 10% amid an ongoing discussion amid bitcoin bulls Elon Musk, Jack Dorsey, and Cathie Wood.
Bitcoin is flashing technical signals that point to a strong jump in price from current levels as soon as next week if trading volume continues to pick up, digital asset broker GlobalBlock said in a note on Monday.
The price of the world’s largest cryptocurrency by market capitalization could break out from its current sideways trading range and jump to $42,000 in the next couple of weeks, said Marcus Sotiriou, sales trader at GlobalBlock. That would be 26% higher than bitcoin’s price of $33,171 seen around midday on Monday.
Underpinning this prediction is the Bollinger Bands indicator, which defines an upper and a lower range that forecasts volatility when constricted. The indicator has been at its tightest spread since September 2020.
Bitcoin has been trading at $29,000-$42,000 since a broader cryptocurrency crash in May. Unless the price breaks out of this range, it technically remains in a downtrend, Sotiriou added.
However, he noted that bitcoin’s price continues to hold the 50-week exponential moving average as support. It also looks to break out of a downtrend on the daily Relative Strength Index, which started in January 2021.
“Because the [Relative Strength Index] is trending up whilst price is trending down, bearish momentum is dying out,” he said.
Bitcoin was last trading 2.43% lower, at $33,072 as of 3:23 p.m. ET on Monday.
Bitcoin may have to fall as low as $25,000 before major investors start snapping up bitcoin in large quantities again, the chief executive of $1 billion crypto lender Amber Group has said.
Michael Wu told Insider in an interview this week he thought bitcoin has to fall further before institutions such as hedge funds are attracted to the asset again. He said he thought that level was probably between $25,000 and $30,000.
Bitcoin fell 5.5% on Thursday to $32,640. That was well below April’s record high of close to $65,000.
“If we really have a flush down to, say, $25,000, or even briefly below that, I think there’s tremendous interest waiting to buy very cheaply at those levels for long term entry,” Wu said.
The breakneck rally in the first few months of the year was in large part driven by interest from big institutions like hedge funds and banks, analysts have said.
According to JPMorgan’s crypto expert Nikolaos Panigirtzoglou, institutional interest has all but dried up in recent months. He told Insider in June: “There is no evidence here of a buying-the-dip mentality.”
Wu, whose Amber Group recently gained the backing of major hedge funds and a $1 billion valuation, said institutions are not rushing into the crypto space “like they were doing last year, or the beginning of this year.”
But he said he still has plenty of conversations with institutional investors that are interested.
“I think most of them are still very confident and optimistic about the long term outlook of crypto assets. But in the near term, they are not sure [if we are] at the bottom or near the bottom,” he said.
JPMorgan sees worrying signs in the bitcoin futures market.
The bank’s strategists, led by Nikolaos Panigirtzoglou, said the fact that bitcoin futures have been trading at a discount to the spot price – technically known as backwardation – is a sign of weak demand from big players.
“We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market,” the strategists said in a note on Wednesday.
“This is an unusual development and a reflection of how weak bitcoin demand is at the moment from institutional investors that tend to use regulated CME futures contracts to gain exposure to bitcoin.” Futures are contracts that oblige the buyer to purchase an asset at a set price at a fixed date in the future.
Bitcoin has rebounded over the last two days and was up around 4% to $37,915 on Thursday. But it was nonetheless still 40% lower than April’s record high of close to $65,000.
JPMorgan’s strategists said their outlook for bitcoin was negative. They said another worrying signal was that bitcoin’s share of the total crypto market fell sharply during April and May from around 60% towards 40%.
Bitcoin’s lower market share is “a bearish signal carrying some echoes of the retail-investor-driven froth of December 2017,” they said. Amateur investors moved heavily into alternative coins as the crypto world boomed in 2017, but quickly withdrew from the market as it dropped sharply over 2018.
JPMorgan said the bitcoin futures curve was also in backwardation for most of 2018, when the cryptocurrency slid from around $15,000 at the end of 2017 to below $4,000 by the end of the next year.
Regulatory pressures are also building. On Thursday, the top global banking regulator recommended strict new rules for financial institutions holding bitcoin.
Fundstrat Global Advisors managing partner Tom Lee is confident that bitcoin will continue to rally in the wake of Elon Musk’s abrupt reversal Wednesday on allowing Tesla to accept the cryptocurrency as payment.
“I don’t think it’s going to get people negative on bitcoin, but it is going to get people to focus on the problems that are being created by digital assets,” he told Insider. “It is probably better to view it as a call to action for the bitcoin industry to focus on renewables or more efficient ways to provide proof of work.”
Lee, who is the head of research at Fundstrat, said he understands Musk’s decision to suspend bitcoin payments.
“I imagine it would have been tough to accept bitcoin as payment because of the volatility,” he told Insider. “So as a practical, treasury matter, unless Tesla is hedging the bitcoin transaction at the time of purchase, I don’t know if it’s great from a company perspective.”
He added that the ideal way to use bitcoin would be if Tesla transacted the same day, rather than allowing customers to pay first and get the car at a later time, at which point bitcoin may be worth less.
As for the burning question of why Musk made the decision now, Lee said it is possible it was influenced by people within the organization.
“Many people come to Tesla because it’s ESG-friendly,” he said, referring to environmental, social, and governance metrics closely tracked by many investors.
“I think some of these same people might’ve just questioned, well, if you want to accept a digital currency…maybe it shouldn’t be bitcoin,” he said.
Concerns around bitcoin’s energy consumption have hounded the world’s most valuable cryptocurrency. To verify transactions, thousands of computers must be powered, a process that relies on huge amounts of electricity, which critics say comes mostly from fossil fuel sources.
Bitcoin’s fall below a key technical level as investors pivot towards other cryptocurrencies means it could be on track for a sharp slide to $40,000, according to the chief executive of crypto derivatives exchange Delta.
Pankaj Balani told Insider bitcoin’s fall was down to lower interest in the wake of crypto exchange Coinbase’s direct listing; investors chasing quick gains by piling into tokens such as dogecoin and a broader sell-off in risky assets.
He said bitcoin’s fall below its 50-day moving average – which is around $56,000 – could trigger a further decline. Bitcoin stood at $55,870 on Tuesday, around 14% off an all-time high of near $65,000 touched in April.
The 50-day moving average is a key psychological level that is closely watched by investors, Balani said. He said it is also used by some algorithmic traders as a point at which to sell.
Balani said bitcoin could fall to as low as $40,000, which is another important psychological level at which investors should start buying back in.
“The short-term momentum has been lost. So it wouldn’t be surprising to revisit the $40-$42,000 kind of zone. That is where we might find very strong support,” Balani said.
“That is the level where Elon Musk came into bitcoin,” Balani said, referring to Tesla’s purchase. “And that’s kind of become a base level.” Balani said derivatives contracts – which allow people to bet on price rises without actually owning bitcoin – indicated there was strong support at this price.
The Delta Exchange boss said the rotation into other tokens such as ether and dogecoin was a worrying sign for bitcoin and the cryptocurrency market as a whole.
“This is not sticky capital. This is people coming in and chasing quick gains,” he said. Balani said a similar dynamic was seen during bitcoin’s last peak in early 2018: “It’s a blow-off top. And that typically happens at the short-term top of the market.”
Analysts at investment research firm Vanda made a similar point on Monday. “When the rally started to look tired in November , investors rotated to lesser-known altcoins like Ripple and Ethereum,” Ben Onatibia, Vanda Research’s head of markets, wrote.
“In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit.”
Now, bitcoin has found support near $47,000, which coincided with a “9” count buy signal generated by the DeMark indicator. This counter-trend indicator, created by Tom DeMark, helps measure price exhaustion in securities.
Traders should look for bitcoin to move above $62,000 to affirm that the sell-off is over, according to Lee.
“If this [$47,000] holds, and is likely, given this was a level prior to the last ‘sell countdown,’ bitcoin going to rally,” Lee said.
A potential target bitcoin could rally too is $69,000, representing potential upside of 25% from current levels, according to technical analyst Katie Stockton of Fairlead Strategies.
They also said it is crucial that bitcoin find some support soon, or it could slide even further. However, many were confident that investors would be tempted to “buy the dip.”
Here’s what 9 experts said about bitcoin on Friday.
Joe Biden’s tax-hike plans spooked bitcoin investors
“The plunge came after Biden unveiled a raft of proposed tax reforms yesterday – including a plan to nearly double capital gains tax to 39.6% for people earners above a $1 million threshold.
“There is also likely some interplay with the broader stagnation across equities, which could be driving down risk-on assets,” Matt Blom, global head of sales trading at exchange Diginex, said.
“It is clear that bitcoin is more sensitive to capital gains tax threats than most asset classes. The threat of regulation, either directly in developed markets, or indirectly via the taxman, has always been crypto’s Achilles’s heel, in my opinion,” Jeffrey Halley, senior market analyst at currency firm Oanda, said.
“[The] news that someone in Turkey took off with the keys to their cryptocurrency exchange, leaving 390,000 users unable to access their coins and hundreds of millions of dollars missing, was another blow to the industry.
“Perhaps some people are now thinking that this is the high-water mark for cryptocurrencies and they should take their profits while they can still access their coins,” Marshall Gittler, head of investment research at BDSwiss, said.
Bitcoin derivatives trading and borrowing added to volatility
“We are currently seeing a significantly over-leveraged retail market so when there is bearish newsflow like Biden’s proposed capital gains tax increase, we tend to see additional sell-offs which accelerate the price decrease.
“When the bitcoin mining rates recently decreased 50% and the price dropped to around $55k and $57k, the market was thrown off-guard and over $10 billion in positions were liquidated,” Janis Legler, chief product officer and head of research at fintech Mode, said.
“Bitcoin’s crash was precipitated primarily by massive derivatives deleveraging into thin weekend liquidity,” Shane Ai, head of product R&D at exchange Bybit, said.
“Estimated leverage ratios from all exchanges are very high… which opens the possibility for a cascading liquidation run towards which could lead to even further price dips if long term buyers don’t support the market here,”Anton Chashchin, managing partner at CEX.IO Prime Trading, said.
“Bitcoin is having a bit of a moment, but let’s put it into perspective. We’ve seen big gains this year and we were always due a pullback. It’s not only bitcoin that has fallen back, it’s the whole crypto space,” Michael Hewson, chief market analyst at trading platform CMC Markets, said.
Bitcoin could have further to fall, charts suggest
“[According] to the charts, the downside breakout of bitcoin through $56,000 has a target of $42,000. That might come this weekend, or next week or perhaps not at all… In the meantime, don’t hate me for being bearish bitcoin in the near term. I’m just following the charts,” Halley said.
“We have found that bitcoin has exhibited a decline averaging 40% at least once every year before recovering to new highs.
“Therefore, should this latest decline follow true to form then we wouldn’t be surprised to see bitcoin drop to around $39,000 USD before then recovering and reaching new all-time highs,” Gavin Smith, CEO at crypto fintech Panxora Group, said.
“If we see a fall back below $45,000 then we could see a larger move, but overall this feels like a kneejerk reaction to talk of new tax proposals by the Biden administration,” Hewson said.
Yet many investors could be tempted to buy the dip
“Although the market appears to be bearish today, we are still fairly positive on bitcoin’s future outlook in the coming months. Despite that, we remain cautious as we continue to monitor macroeconomic climate, especially the Fed’s stance against the inflation rate.
“There is a lot of speculation, and there isn’t really a good way to predict the future price,” Bobby Ong, co-founder of CoinGecko, said.
“There could be further short-term drops in price from here, but the fundamentals are still looking incredibly strong for bitcoin.
“We are seeing a significant shortage of bitcoin supply and new institutional long-term holders piling in… We still see strong demand for bitcoin at these levels, with a lot of Mode customers ‘buying the dip’,” Legler said.
“The total number of wallets held by whales (i.e. over 1,000 BTC) has grown since the beginning of last week’s sell-off, showing those with the firepower will likely be quite happy to accumulate Bitcoin at a sub $50,000 handle.
“I anticipate that retail investors will likely follow suit and soon too begin to start buying into the dip until bitcoin finds support at circa $55,000,” Blom said.
Bitcoin investors should be more aware of the asset’s volatile history of bubbles and dramatic price crashes, crypto exchange founder Bobby Lee has said.
Lee told Insider that bitcoin’s history suggests it will continue shooting up but then is likely to crash dramatically “within a few hours.” He said bitcoin may rapidly lose 50% of its value and could then fall further over the coming years.
Bitcoin has soared in 2021, touching an all-time high of close to $62,000 in March, after falling below $4,000 in the same month a year earlier.
Analysts said the huge amounts of money pumped into economies by governments and central banks – which have supported asset prices across the board – have been a key driver.
Lee said bitcoin could potentially go to $300,000 in the latest bull market cycle. The cofounder of BTCC, one of the oldest crypto exchanges, said he’s attracted to bitcoin as a store of value at a time when fiat currencies risk losing value due to monetary stimulus.
Yet, the entrepreneur, who has recently written a book about bitcoin, said buyers should be more aware of the digital asset’s hugely volatile past.
“A lot of investors are getting in without knowing the history,” he said. “That’s just life, right? People buy real estate, not knowing the history of real estate bubbles, people buy stocks, not knowing about the history of stock market bubbles.”
He added: “Bitcoin history has shown that not only has it risen really fast, but after every bubble, the bubble bursts, after every bull market, the bubble does burst and it quickly falls.”
Lee said bitcoin could fall 50% rapidly, “and then it’ll be a bear market for the next two, three years.” At times, it could even fall as much as 90% from previous highs, he said.
“When bitcoin winter comes, when it crosses the 50% sell-off, that’s when people lose conviction and then people panic. They sell, and that’s what causes it to go down even further and sit at that low level for two or three years.”
Yet, Lee said he remained optimistic about bitcoin. “We just have to have the mental fortitude to hold onto it, what they call HODL… hold on for dear life.” He predicted it could even hit $1 million if it continues to go through boom-and-bust cycles.
Bitcoin continues to sharply divide the financial world, although many investors and institutions have been drawn to the cryptocurrency’s remarkable rally. JPMorgan, Morgan Stanley, BlackRock, and Tesla are some of the major corporations to get involved.
However, bitcoin skeptics argue that bitcoin’s massive volatility means its institutional adoption will be limited. Many argue its rise has been driven by huge amounts of stimulus and could falter once people return to normal life and spending patterns after the coronavirus pandemic.
They say it is set for a price crash similar to after 2017, when bitcoin plunged below $4,000 from about $20,000 in just over a year.
The bitcoin rally is “very long in the tooth” and could be about to sharply reverse course, according to one currency strategist.
Boris Schlossberg, managing director of FX strategy at BK Asset Management, told CNBC this week CME Group’s announcement that it will introduce micro bitcoin futures could be a sign that the market is at the top.
“Last time they announced that there was going to be futures” – which was in 2017 – “bitcoin actually hit [the] top,” Schlossberg said.
“I don’t think any asset that has a volatility of 20% per week can really act as a currency at this point,” Schlossberg said. “And I think whatever transactions you’re going to see in bitcoin are going to be infinitesimally small relative to regular currency.”
The foreign exchange strategist said he thought “the whole rally in crypto… is getting very long in the tooth.”
He said: “I think we’re very, very close to perhaps an intermediate-term top here. A little bit of a correction is certainly due at this point.”
Schlossberg is far from the only analyst predicting that the remarkable rally in the world’s biggest cryptocurrency could be nearing its peak. Bitcoin has risen around 775% over the last year to $58,400 on Thursday, according to Coinbase data.
Yet bitcoin tycoon Mike Novogratz predicted on Wednesday that increased institutional interest would drive the asset to be bigger than gold. He told CNBC he is shocked at the pace of crypto adoption by big Wall Street players.