JPMorgan points to weak Bitcoin futures as signal for bear market
JPMorgan’s cryptocurrency market analysts have noted the difference between Bitcoin spot prices and futures prices as a potential bearish sign for the market.
In the note to clients on Thursday, JPMorgan analysts led by global market strategist Nikolaos Panigirtzoglou wrote that the Bitcoin market has returned to backwardation, a situation when the spot price is above futures prices.
The note further reads that the past month’s correction in crypto markets saw Bitcoin futures reversing into backwardation for the first time since 2018.
According to Nikolaos, Bitcoin futures backwardation needs to be considered as a negative sign for BTC price despite a major rebound on the market over the past two days, with Bitcoin hitting $37,500 on Thursday.
He stated that the Bitcoin futures curve was in backwardation mostly during 2018, the same year when it dropped 74% after hitting its then-historic high of $20,000 in late 2017.
“We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market.” he said,” In our opinion, the shift in Bitcoin futures into backwardation is a bearish signal echoing 2018.”
JPMorgan specifically looked at a 21-day moving average of the second Bitcoin futures spread over spot prices, in the latest analysis. The analysis observed an unusual development and a reflection of how weak Bitcoin demand is while institutional investors trade futures contracts on the Chicago Mercantile Exchange.
The analysts also noted that Bitcoin’s decreasing position in total crypto market value is another concerning trend. Bitcoin dominance in the crypto market tanked to 40% in late May, marking the lowest share over the past three years after surging above 70% this January.
Currently, Bitcoin’s dominance in the total crypto market capitalization is 43%, accounting for $702 billion out of the total crypto market value of $1.62 trillion, according to data from CoinMarketCap.