JPMorgan Chase & Co. (NYSE:JPM) sees signs that a bear market may be coming in bitcoin. In a recent note, the firm warned about backwardation, in which futures prices lag behind the spot price. JPMorgan strategists believe that the return to backwardation in recent weeks suggests a bear market is here.
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JPMorgan warns about possible bitcoin bear market
Bitcoin gained about 14% in just two days of trading, triggering a new round of momentum that has pleased enthusiasts.
In addition to backwardation, strategist Nikolaos Panigirtzoglou and his team of strategists also warned about bitcoin’s declining share of the value of the total cryptocurrency market. They based their analysis on the 21-day rolling average of the second bitcoin futures spread over spot prices.
The JPMorgan team noted that the cryptocurrency’s futures curve remained in backwardation throughout most of 2018. During that year, bitcoin plunged 74% following a strong bull market. They explained that backwardation is an “unusual development and a reflection of how weak bitcoin demand is at the moment from institutional investors.” The JPMorgan team added that such investors often use contracts listed on the Chicago Mercantile Exchange.
Why it looks like retail investors have taken over
They explained that the current bull market in bitcoin appears to be driven by retail investors rather than institutions. The JPMorgan team cited data from CoinGecko, which indicates that bitcoin’s share of the total crypto market’s value stands at around 42%, down from about 70% at the beginning of the year.
According to Bloomberg, some analysts see that as a sign that retail investors are driving the market by lifting the prices of other tokens. The JPMorgan team believes that bitcoin’s share of the crypto market’s total value may need to pass 50% for them to argue that the bear market is over. They also pointed out the cryptocurrency’s falling market share last month before its price plunged.
Bitcoin traders are now in a holding pattern, waiting to see what will drive the cryptocurrency back above $40,000. The bitcoin price has been range-bound between $30,000 and $40,000 since it fell from its record high of nearly $65,000 in April. One factor that led to the decline was Tesla CEO Elon Musk’s criticism of the energy that bitcoin miners use to get more tokens.
Other factors included China’s regulatory crackdown on the cryptocurrency. On Wednesday, bitcoin bulls received a boost from El Salvador’s decision to make it legal tender. Chris Weston of Pepperstone Financial Pty told investors in a note today that bulls need a break for them to feel they’re “out of this period of vulnerability.”
