Bitcoin
and other cryptocurrency tokens suffered an almost inexplicably rapid crash last week, erasing the rally that had begun in June. The good news? The sell-off is likely over.
That’s the message investors can take from activity in the Bitcoin futures market, analysts for JPMorgan Chase wrote in a research note on Thursday. Since Aug. 14, the price of the token has dropped more than 11% to about $26,000, about its level in early June.
Token prices were bolstered this summer by a series of news events which started in June and encouraged investors to build huge long positions in the futures market.
BlackRock
(ticker: BLK),
Invesco
(IVZ),
WisdomTree
(WT), and other fund companies filed applications to launch a spot-price-based Bitcoin exchange-traded fund. Then came crypto company Ripple Labs’ July court victory, when a judge found that most transactions in a Ripple-backed token called XRP did not meet the definition of a security. The decision looked to take much of the market out of the jurisdiction of the Securities and Exchange Commission, which has been cracking down on the crypto industry.
Those events pushed a measure of Bitcoin futures positioning to its highest level since the beginning of 2023, the JPMorgan analysts said. That all changed earlier this month, after The Wall Street Journal reported that SpaceX had sold some Bitcoin and the SEC made clear that it would challenge the Ripple ruling.
The good news is that investors’ Bitcoin positioning is back to its level before the rally, the analysts wrote, meaning that the liquidations could be nearing an end.
“This unwinding of long positions appears to be at its end phase rather than its beginning. As a result we see limited downside for crypto markets over the near term,” the analysts said.
Indeed, there are potential catalysts on the horizon that could drive token prices higher.
Any day, a District of Columbia appellate court is expected to rule on whether the SEC erred in its reasoning for rejecting a bid for Grayscale Investments to convert the Grayscale Bitcoin Trust (GBTC) into an ETF. If the SEC loses, it could still appeal or reject the ETF application for another reason, but a Grayscale victory still would likely propel Bitcoin prices higher.
Some investors think Bitcoin prices will rise before April, when the protocol that powers the token is expected to cut in half the rewards crypto miners receive for minting Bitcoin. Any increased clarity from U.S. regulators on how they treat the token could encourage institutional investors to take stakes, too.
However, Bitcoin’s price might be dampened by other factors. The token’s past performance has correlated closely to that of the
Nasdaq Composite,
meaning that a flight from risky assets broadly could also hurt the token’s price. Recent technical factors have also pointed to a bearish trend.
But as far as rapid liquidations go, the worst pain is likely in the rearview mirror.
Write to Joe Light at [email protected]
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