The Citizen (Gauteng)

Bitcoin’s slump stirs warning of crypto market

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Parabolic jumps in digital tokens such as Ether, Dogecoin and Binance Coin are outshining Bitcoin, prompting more questions about whether that segment of the cryptocurr­ency sector is ripe for a reckoning.

The rallies have contribute­d to a slump in Bitcoin’s share of the $2.6 trillion crypto market to 43% from about 70% at the start of 2021, a metric that for strategist­s at JPMorgan Chase & Co and DataTrek Research may be a warning sign of investor excess in a range of digital tokens.

Bitcoin’s waning dominance carries echoes of “froth” to the extent it’s being fuelled “by a rally in other cryptocurr­encies driven more by retail demand,” a JPMorgan team led by Nikolaos Panigirtzo­glou wrote in a note Friday. DataTrek’s co-founder Nicholas Colas has indicated that history suggests tokens outside Bitcoin can drop “pretty quickly” when Bitcoin’s share hits 40%.

Plenty of commentato­rs have been fretting for some time that a stimulus-fuelled peak is at hand in cryptocurr­encies – only to see them rally even more. But the worry is hard to shake in a sector that defies traditiona­l investment analysis.

The share of the largest cryptocurr­ency could be declining because investors are getting more comfortabl­e with a wider array of tokens. Alternativ­ely, retail traders may be chasing quick, speculativ­e gains. “Even if you don’t invest in the space, this is worth tracking,” Colas wrote in a recent note.

He added that with more than $2 trillion (about R28 trillion) now invested in virtual currencies, “a meaningful reset lower could also affect more traditiona­l financial assets like equities”.

For the JPMorgan team, the possible retail-driven froth in cryptocurr­encies is a reminder of late 2017, when a crypto boom peaked.

Among the most notable moves in the crypto market yesterday was Ether’s jump past $4 000 for the first time after a climb of more than 2 000% in the past year. The JPMorgan team said an analysis of activity on Ethereum blockchain suggests a lower fair value of $1 000 for the token.

Dogecoin – which started as a joke in 2013 but is now a dominating Internet meme and sitting on a 20 000% advance in the past year – captured the headlines over the weekend. First off, billionair­e Elon Musk cited the token again, this time in a much-touted television appearance on the US show Saturday Night Live.

Later, it emerged that the cryptocurr­ency is apparently being used to pay for a lunar satellite launch with SpaceX, Musk’s commercial rocket firm.

Bitcoin was up 1.7% yesterday at about $58 887 in London.

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