JPMorgan Issues Stark Bitcoin Warning as “Backwardation” gives Bearish Signals

June 14, 2021
JPMorgan Issues Stark Bitcoin Warning as “Backwardation” gives Bearish Signals

The global cryptocurrency market has witnessed a loss of US$1 trillion in value since it peaked at US$2.5 million in mid-May 2021. Recently, it touched a 7-day low at US$31,114.4 and rebounded due to El Salvador’s decision of acknowledging BTC as a legal tender alongside the US Dollar. 

Besides BTC,  five other cryptocurrencies have also lost ground by 5% to 10% this week. Recently, the BTC price against the US Dollar bounced back towards the US$40,000 level. Renowned investment bank JP Morgan’s analysts said that the "backwardation" experienced by Bitcoin over recent weeks could be pointing to an upcoming “bear market”. 

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 JPMorgan strategists led by Nikolaos Panigirtzoglou have written in a note: “We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market.”

 Financial newswire Bloomberg has warned that the crash of BTC price from US$50,000 per BTC in May 2021 to the current level is an “unusual development and a reflection of how weak bitcoin demand is at the moment from institutional investors.”

The analysts of JPMorgan and Bloomberg point out that there is a weakness in the futures market of Bitcoin, echoing the bear market seen during 2018. The continued fall in BTC price in 2018 was called a crypto winter because of its devastating effect on cryptocurrencies across the board.

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The prices of Bitcoin (BTC), Ethereum (ETH), Cardano (ADA), Binance Coin (BNB), and Dogecoin (DOGE) boomed by over 1,000%. Analysts believe that this was because of the long-awaited institutional adoption as well as the fear-of-missing-out (FOMO) of the retail investors.

As crypto investors and traders kept accumulating these altcoins, the dominance of Bitcoin in terms of market capitalization dropped from around 70% at the beginning of 2021 to just over 40%. JPMorgan's analysis pointed out that the bull market of Bitcoin will return only when the dominance of BTC returns to over 50%. Bitcoin’s dominance dropped below the 50% mark in late April 2021. CoinMarketCap data shows that this happened for the first time since July 2018. 

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However, some cryptocurrency market watchers are of the opinion that the Bitcoin price correction is approaching a bottom. Lukas Enzersdorfer-Konrad, chief operating officer at Austria-based crypto exchange Bitpanda, has said in an emailed note that:

“When deep-diving into bitcoin’s market corrections, the -49% plunge in May marked the 6th biggest event of this kind, which could be seen as one of the largest monthly corrections in history...With that said, corrections of this magnitude are common and should be expected. Bitcoin finished the month down by 35% and is still struggling to find a new support zone. With the price down by almost 50% from its all-time-high, some bullish news suggests that bitcoin is nearing a bottom.”

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