US$40,000 key test for Bitcoin boom: JPMorgan strategists

Singapore

BITCOIN could be at risk of a further drop unless the digital coin climbs back above US$40,000 soon.

That's the view of JPMorgan Chase strategists including Nikolaos Pani-girtzoglou, who said the cryptocurrency could be hurt by an exodus of trend-following investors unless it can "break out" beyond that price level.

The pattern of demand for Bitcoin futures and the Grayscale Bitcoin Trust, the largest traded crypto fund, will provide clues about the outlook, they said.

"The flow into the Grayscale Bitcoin Trust would likely need to sustain its US$100 million per day pace over the coming days and weeks for such a breakout to occur," the strategists wrote in a note on Friday.

Traders searching for clues about investor appetite for risk have been gripped by Bitcoin's stunning rally and turbulent 11 per cent slide from a record of almost US$42,000 on Jan 8. The cryptocurrency boom since March embodies the ebullience in financial markets awash with stimulus to counter the impact of the pandemic - as well as the concern that some of these gains may ultimately prove unsustainable.

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The JPMorgan strategists said Bitcoin was in a similar position in late November, except with US$20,000 as the test. Flows of institutional investment into the US$22.9 billion Grayscale trust helped the world's largest cryptocurrency extend its rally, they wrote.

Trend-following traders "could propagate the past week's correction" and "momentum signals will naturally decay from here up till the end of March" if Bitcoin's price fails to break above US$40,000, they said.

Exactly what's driven the year-long quadrupling in Bitcoin's price remains murky. Commentators have cited day traders, wealthy buyers, hedge funds, companies and even signs of interest from long-term investors like insurers.

Bitcoin proponents argue it is maturing as a hedge for dollar weakness and the possibility of faster inflation as the global economy recovers. Others say its defining characteristic remains speculative booms followed by busts.

The digital currency dipped about 2 per cent to US$35,800 in Tokyo on Monday morning. BLOOMBERG