The recent cryptocurrency sell-off that pushed Bitcoin to less than $31,000 at one point looks a lot like the collapse at the end of crypto’s previous bull cycle, JPMorgan’s head of interest-rate derivatives strategy said.
Josh Younger said in a note Monday said that although the recent rise in cryptocurrency market capitalization in general is different from that of 2017, that the fall has some resemblance, Business Insider reported.
The pace and magnitude of the unwind of the cryptocurrency market looks “eerily similar” to the previous cycle. And just like in 2017, investors have begun to diversify away from bitcoin and ethereum and into stablecoins and altcoins. As the crypto frenzy continues, investors buy riskier and riskier assets.
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This risky pivoting combined with negative momentum signals and institutional outflows “should caution any view that the worst is clearly behind us,” Younger warned.
He however noted that the market in this cycle has not seen the frothiness that stemmed from the frenzy of ICO’s (initial coin offerings, and that there’s been more institutional sponsorship in this current cycle, continued development and maturation of market infrastructure, broader and cheaper availability of leverage, and the rise of DeFi projects, Younger said.
Crypto is in the middle of a “sizeable correction,” he said and it’s too early to call the bottom, but the resilience of the crypto market structure is a “positive technical backdrop” for a recovery.
“We continue to see evidence of resilient microstructure in cryptocurrency markets: the volatility spike appears somewhat regionally localized, market depth is down but has not cratered despite these moves, and derivatives pricing has managed to adjust quickly enough to retain a decent fraction of the levered long base,” Younger said. “This all argues against the view that we are in the midst self-reinforcing vicious cycle of price declines-a classic run scenario.”
Ifunanya Ikueze is an Engineer, Safety Professional, Writer, Investor, Entrepreneur and Educator.
