JPMorgan says Bitcoin is showing ‘weakness’ as fund inflows fall

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Analysts at US bank JPMorgan say the bitcoin (BTC) market is showing signs of weakness, according to a report by financial news agency Bloomberg.

The asset suffered a nearly 10% drop over the weekend, resulting in a $10 billion sell-off across the crypto-currency market, $5 billion of which came from bitcoin transactions alone.

Cash flow seems to be low

Nikolaos Panigirtzoglu, an analyst, said popular momentum signals point to trouble for traders if the world’s largest crypto asset fails to break through the $60,000 level. From here, momentum signals will naturally weaken in the coming months, given the still high levels, he said, adding:

Inflows into bitcoin funds also appear to be low.

The price of bitcoin has risen more than 1,000 percent since March, when the value temporarily dropped below $5,000. Strong fundamentals, broader institutional adoption and a two-for-one split helped push the asset above $64,000 earlier this month – a move that saw bitcoin reach a $1.1 trillion valuation for the first time.

But since then, development has slowed and prices have become volatile. As you can see in the image below, the price of bitcoin has mostly fluctuated between $50,000 and $60,000 in recent months, causing some to worry about a possible top.

Image: TradingView.

Rally future…. and relax

Much of the price action last year was also driven by the bitcoin futures market, a financial instrument that tracks BTC prices and allows traders to gain significant leverage (borrow from exchanges in exchange for collateral) to place larger bets.

This has led to market spikes, followed by a characteristic sudden drop when accounts are liquidated – a term that refers to the closing of trading positions when bitcoin (or other futures) reaches a predetermined liquidation price.

This is what Panigirtzoglu highlights in his analysis. Traditional commodity trading advisors (CTAs) and crypto funds have reportedly taken large positions in bitcoin futures in recent weeks.

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And when asset prices began to collapse, leveraged positions were closed, causing prices to fall and then spiral downward.

Bitcoin futures markets have seen a sharp sell-off in recent days, similar to what happened in mid-February, mid-January or late November last year, Panigirtzoglu wrote in a note.

He added that on three previous occasions, the overall flow of bitcoin was strong enough that bitcoin quickly broke through key price resistances – a move that was exaggerated by impulsive traders rushing into their positions.

And it’s a cautionary tale for those on the bench:  It remains to be seen whether we will see a repeat of these earlier occurrences in the current economy, the paper said, adding that this time the deterioration in momentum is more advanced and therefore harder to reverse.

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