Strategists are hard to see a Bitcoin comeback, at least for the time being, as the digital currency lingers around the $30,000 mark.
A JPMorgan Chase & Co. team led by Josh Younger and Veronica Mejia Bustamante wrote in a note Friday that the near-term situation is "difficult," while David Grider of Fundstrat Global Advisors LLC suggested lowering risk or buying some protection.
Blockchain data implies recent bitcoin sales were undertaken to cover losses, according to the JPMorgan team, adding that “there is likely still an overhang of underwater positions that need to be cleared through the market.”
Bitcoin has dropped almost half since peaking near $65,000 in April, owing to a cryptocurrency crackdown in China, increased regulatory scrutiny elsewhere, and fears that the virtual coin's servers use too much energy. The possibility of diminishing emergency stimulus as the economy recovers has also arisen as a potential roadblock for the most risky investments.
Nonetheless, JPMorgan strategists see stability in the Bitcoin futures market as a plus, as well as the likelihood of higher production costs as China's crackdown forces Bitcoin mining outside of the country. According to some studies, the marginal manufacturing cost has a significant impact on Bitcoin pricing.
While the “cryptocurrency market shows evidence of not yet being healthy,” they concluded, “it also appears to be beginning the process of healing.”
After falling over 8% on Friday, the largest cryptocurrency fell as much as 6% to $30,296 on Saturday. Other cryptocurrency were under pressure as well, with Ether losing more than 5% of its value. Some chart watchers believe the $30,000 mark is critical for Bitcoin, arguing that a drop below it might lead to a drop to $20,000.
Grider, Fundstrat's lead digital asset strategist, highlighted that a huge short position has been re-emerging on the cryptocurrency exchange Bitfinex, and noted that the previous time a similar situation arose, unfavourable news out of China drove prices lower.