23 April, 2024

Bitcoin Faces Bearish Signs Amid Overbought Conditions

22 Mar, 2024

22 Mar, 2024

  • Bitcoin’s 15% drop prompts JPMorgan’s warning of overbought territory.
  • Futures position proxies and premiums indicate limited position unwinding and sustained CME futures interest with declining ETF flows signal a bearish trend.
  • Profit-taking is likely to continue amid upcoming halving events as cautious market sentiment prevails.

The cryptocurrency market experienced a significant correction last week with Bitcoin dropping over 15%. JPMorgan analysts led by Nikolaos Panigirtzoglou believe Bitcoin remains in “overbought territory”. 

While the price has recovered somewhat following the Federal Reserve meeting analysts at JPMorgan warned that the correction may not be over. Panigirtzoglou suggested that despite the recent bounce-back the cryptocurrency remains in overbought territory based on two key metrics namely futures position proxies and the premium of Bitcoin futures prices over spot prices. These metrics suggest a limited unwinding of positions despite the recent price drop.

JPMorgan strategists highlighted that sustained open interest in CME Bitcoin futures coupled with decreasing ETF flows signify significant bearish indicators for Bitcoin’s price. The strategists in the note wrote, 

The pace of net inflows into spot Bitcoin ETFs has slowed markedly, with the past week seeing a significant outflow. This challenges the notion that the spot Bitcoin ETF flow picture is going to be characterized as a sustained one-way net inflow.

Adding to this, they wrote that as the halving event approaches, where the rewards for Bitcoin miners are halved, it is expected that profit-taking behavior will persist. This is especially true given the current market conditions which still indicate that Bitcoin is overbought despite the recent correction in prices. 

Source: TradingView

Although some investors are hopeful about Bitcoin’s potential to reach higher prices by the end of the year driven by the expected demand from spot ETFs, JPMorgan analysts see a potential slowdown in this trend. They highlight a recent decrease in net inflows into spot Bitcoin ETFs which suggests that the support may not be as consistent.

Recently, JPMorgan predicted a potential drop to $42,000 after the halving due to reduced rewards and higher production costs. The recent downturn in Bitcoin’s price hitting a 13-day low below $64,500 has set a cautious tone for the broader cryptocurrency market. The analysts concluded referring to the upcoming halving event in mid-April where miner rewards get cut in half, stating, “In fact, as we approach the halving event, this profit-taking is more likely to continue.” 

Last week, Bitcoin’s price chart revealed a bearish Swing Failure Pattern (SFP) on March 17 indicating a struggle to sustain momentum after attempting to breach a significant resistance level. Despite the push above the previous all-time high (ATH) of $69,138, Bitcoin failed to maintain bullish momentum resulting in a weekly close below this level confirming the bearish SFP.


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