Traders looking for clues on investor risk appetite are taking a close look at the cryptocurrency’s turbulent 12% drop after its meteoric rise to $ 42,000.
Bitcoin rose to $ 37,000 on Monday, returning to a level that strategists at JPMorgan Chase & Co. see as an inflection point for the digital coin.
The cryptocurrency could be affected by an exodus of trend-following investors unless it can soon “burst” above $ 40,000, a team including Nikolaos Panigirtzoglou said. The demand model for Bitcoin futures and the grayscale $ 22.9 billion Bitcoin Trust will help determine the outlook, they added.
“The flow in the Grayscale Bitcoin Trust would likely have to maintain its $ 100 million per day pace over the next few days and weeks for such a breakout to occur,” the strategists wrote in a note on Friday.
Traders looking for clues on investor appetite for risk were taken aback by Bitcoin’s astonishing rally and the turbulent 12% drop from a record high of nearly $ 42,000 on January 8. the concern as to whether the gains will ultimately prove to be fleeting.
JPMorgan strategists said Bitcoin was in a similar position at the end of November, except with $ 20,000 as a test. Flows of institutional investment in the Grayscale Trust have helped the world’s largest cryptocurrency extend its rally, they wrote.
Traders following the trend “could propagate last week’s correction” and “momentum signals will naturally deteriorate by the end of March” if the price of Bitcoin does not exceed $ 40,000, have they declared.
Bitcoin rose about 1.6% to $ 37,138 as of 12:29 p.m. Monday in London. Ether, another popular digital coin, fell 1.6% to $ 1,241.
What led to the almost quadrupling over one year in the price of Bitcoin remains unclear. Commentators have cited day traders, high net worth buyers, hedge funds, corporations and even signs of interest from long-term investors like insurers.
‘Dread to Think’
Some, like Chris Iggo, remain skeptical about Bitcoin’s appeal to large institutions.
“I dread thinking what most risk managers would think of in a core investment portfolio,” Axa Investment Managers’ director of core investments wrote in a note. “For assets to be included in a long-term investment portfolio, you have to be able to attach fundamental intrinsic value to them.”
Supporters of Bitcoin claim it is maturing as a hedge against dollar weakness and the possibility of faster inflation in a recovering global economy. Others say its defining characteristic remains speculative booms followed by busts.