Crypto outlook: JPMorgan sees signal for an upcoming bear market in Bitcoin

Bitcoin’s recent boom has yet to dispel doubts about its vulnerability.

The cryptocurrency is up 10% in two days and traded at $ 36,993 at 9:00 a.m. in London on Thursday. While the momentum might cheer the bulls, a team at JPMorgan Chase & Co. said backwardation in the futures market – where the spot price is above futures prices – is a cause for caution.

“We believe the return to backwardation has been a negative signal in recent weeks, suggesting a bear market,” JPMorgan strategists, led by Nikolaos Panigirtzoglou, wrote in a press release. They added that Bitcoin’s relatively low share of total crypto market value is another worrying trend.

Traders are waiting for the next catalyst that will break Bitcoin from a range of $ 30,000 to $ 40,000, which has persisted since collapsing from a record high of nearly $ 65,000 in April. The public criticism of the energy requirements of the digital currency by the tycoon Elon Musk and cracks taken by the Chinese regulatory authorities are among the obstacles. The bulls got a bit of a boost on Wednesday after El Salvador made Bitcoin legal tender.

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The virtual currency “needs to get to $ 39,460 and the top of the recent range to really pick up, but we need to pause here to let the bulls feel we are past this vulnerability,” Chris Weston, Head of Investigation with Pepperstone Financial Pty, wrote in a note Thursday.

JPMorgan’s June 9 analysis looked at the 21-day moving average of the 2nd Bitcoin futures spread across spot prices. The backwardation shown is an “unusual development and a reflection of how weak Bitcoin demand is currently from institutional investors” who use contracts listed on the Chicago Mercantile Exchange.

The Bitcoin futures curve was in backwardation for most of 2018, a year when the cryptocurrency fell 74% after a spectacular boom, JPMorgan said.

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Meanwhile, Bitcoin’s share of total crypto market value is currently 42%, up from around 70% at the beginning of the year, according to data from tracker CoinGecko. For some analysts, this is partly a sign that the retail-focused investment frenzy is raising other coins.

Bitcoin’s share may need to be above 50% to make it easier to argue that the current bear market is over, JPMorgan strategists said.

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