The Citizen (Gauteng)

Bitcoin’s slump stirs warning of crypto market


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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