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JPMorgan Strategists Being Tested on Bitcoin Short-Term Setup

JPMorgan Strategists Being Tested

July 29, 2021 | 

668 Views | 

JOHN K MWANIKI | 

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Experts say that the crypto bull market still has a long way to go. Recently, there have been lots of negative news regarding the market. This has further triggered fear, doubt, and uncertainty, which has led to the drop in crypto prices.

A significant event to note in the crypto market in July, which was the fall of bitcoin price, led to the drop of other cryptocurrencies too. It is reported that bitcoin's price plummeted below $30,000. Other established cryptos like Ethereum, Cardano, and Dogecoin also dropped by over 5% in price. The ripple effect was the crypto market losing $100 billion of 2021 gains. 

According to the data pattern on the performance of the crypto, JPMorgan analysts cite that the market is not yet healthy regardless of the recovery it has made so far. 

What could be the reasons behind the plunge?

Just like the stock market, the crypto market is affected by macro events. Some of the events that could have contributed to the plummet of crypto prices may include.

1. Regulations    

Regulatory scrutiny is an obvious reason behind the crash. Note that there is a crackdown in China on crypto trading and mining. This has weighed down the price of the cryptocurrency. Bitcoin operations have slowed down as mining centers have been forced to shut down. 

More so, fintech companies are being discouraged from offering crypto-related services to consumers. Chinese regulators' restrictions have continued to affect the cryptocurrency's price. 

2. Slow recovery caused by the surge in Covid-19 Delta infections

The crypto market is experiencing a plunge across the globe and the rise in infections caused by the Covid-19 Delta variant. Hence, the crypto is having a hard time recovering. 

These are the main speculations made by experts in a bid to explain the reason behind the cryptocurrency's fall. Some of the causes are still unknown and might need to be curbed for bitcoin to achieve significant recovery.

What does the crash mean for investors?

1. Long-term investors have nothing to worry about

For long-term investors, the crash shouldn't be something to worry about. That is particularly the investors that practice the buy-and-hold strategy. The price drop can be considered a normal occurrence as such swings are expected. 

Investors also understand the volatile nature of cryptocurrencies.

2. New investors should keep their crypto investments under 5% of their portfolio

Cryptos are volatile, and the volatility is here to stay. Investors can manage the risk by limiting the amount of their investment capital they allocate to bitcoin. 
Investors need to be keen on their risk tolerance as they invest in this market.

What does the future have in store for Bitcoin?

After the plunge to $30,000, bitcoin managed to come up to $35,000. This, however, does not mean that the challenge is over. There are still unresolved overhang positions that need to be addressed for the worth to go back to where it was. 

JPMorgan strategists cite that while there is a long way to go, there is the possibility of the price going up again. This will likely be motivated by;

1. An increase in the cost of production

The cost of production is among the factors that determine the cost of 1 bitcoin. Electricity is an important resource in the mining of cryptocurrency, which also attracts a considerable production cost. This is factored in the crypto's price.

The recent miners' migration from China could also lead to an increase in production costs. The development could bring positive news to the bitcoin network as this might increase its price. An increase in the cost of production might also contribute to the stability of bitcoin's futures market.

2. Positive statements from influential people can help with the crypto's price bump

Comments, both positive and negative, have had an impact on the performance of cryptocurrencies over the past. It is not something new. A word from the right person could play a role in boosting bitcoin's price.

Elon Musk's Twitter activity has increased its price over the past, and it is only natural that activity from another influential person will do the same now. Already, bitcoin's price climbed above $35,000 because of a positive statement from Mexican's third-richest man, Ricardo Salinas Pliego. 

Is the setup going to be over any time soon?

According to JPMorgan, experts cite that bitcoin's current value will inform whether things will improve in the entire crypto market. Since April, the cryptocurrency has been on a downward trend, and this is projected to continue.
It is safe to say that the movements will be unpredictable, and volatility should be expected in the coming days. 

The asset is speculative, and experts advise traders to invest only what they are willing to lose. Some of the risk mitigation strategies recommended include allocating less than 5% of investment capital to this digital asset. 

As the adoption of the cryptocurrency continues, the crypto's value is set to rise again. Therefore, all is not lost for people who have invested in the digital asset and those who are looking to adopt it.

The setup is an opportunity for investors to buy the crypto at a discount. With time, the price should go back to where it was. Also, for people who are looking to try out the crypto market, it is better if they approached the investment through a buy-and-hold strategy. What this means is during this phase of volatility, a long-term investment would be ideal.

Conclusion

The recent Bitcoin drop is an eye-opener on the nature of the cryptocurrency market. Many investors are seeing these swings as part of the game: a volatile crypto market. The reality is the swings have not started just now, and they are not about to stop. 

Bitcoin will also continue to grow amid all the uncertainty. What investors need to do is know how to best position themselves and protect their money from risk. Long-term investment and allocating just a small percentage to crypto is the way to go. Being the major digital currency in the crypto market, bitcoin can inform the performance of the rest of the market.

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