Bitcoin's return to US$40,000 in doubt as flows to key fund slow

Hong Kong

CRYPTOCURRENCY enthusiasts who are counting on Bitcoin to bounce back above the US$40,000 level face a challenge due to faltering demand for the biggest fund tracking the digital asset, according to JPMorgan Chase.

The pace of flows into the US$20 billion Grayscale Bitcoin Trust "appears to have peaked" based on four-week rolling averages, JPMorgan strategists led by Nikolaos Panigirtzoglou said in a note on Friday. The fund slid 22 per cent over the past two weeks through Jan 22, outpacing a 17 per cent drop in Bitcoin in the same period.

"At the moment, the institutional flow impulse behind the Grayscale Bitcoin Trust is not strong enough for Bitcoin to break out above US$40,000," the strategists said. They added that the "risk is that momentum traders will continue to unwind Bitcoin futures positions".

Bitcoin's red-hot rally lost momentum after the largest cryptocurrency reached a peak of almost US$42,000 on Jan 8. Proponents argue institutional interest has helped bolster Bitcoin's use as a hedge against dollar weakness and inflation, while sceptics maintain the latest surge is yet another speculative bubble, akin to the 2017 mania that preceded a rapid collapse.

"The near-term balance of risks is still skewed to the downside," the JPMorgan strategists said.

In a separate analysis, Adam James with OKEx Insights found at least some long-term Bitcoin holders - so-called "whales" - and miners likely sold to institutional investors during the 2020 rally, as the average age of coins traded rose starting in October and has remained elevated since.

"Old-school Bitcoiners sold some of their old bags to new institutional buyers with extremely large new bags to fill," Mr James wrote. OKEx Insights is affiliated with crypto-exchange OKEx.

Bitcoin advanced about 4 per cent to US$33,225 in London earlier on Monday. The digital coin is still sitting on a gain of almost 270 per cent over the past year, despite shedding around US$10,000 from this month's all-time high. BLOOMBERG