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Bitcoin and other crypto assets have had a rough time over the past month.
While the leading crypto received a boost on Wednesday after news that lawmakers in El Salvador voted to approve bitcoin as legal tender, its price remains nearly 40% below highs of around $ 60,000. from barely a month ago.
Our call of the day, from strategists led by Nikolaos Panigirtzoglou of investment bank JP Morgan, is that two key metrics indicate that bitcoin BTCUSD, + 4.22% is in a bear market and they can also tell investors when it is ‘is finished.
The first red flag is that Bitcoin futures contracts have gone into reverse for the first time since 2018, strategists said. The backlash occurs when the current price of an asset is higher than the price traded in the futures markets. Futures on the other leading crypto asset, ethereum ETHUSD, + 0.32%, also approached this critical turn to the offset, as seen in the chart below.
JP Morgan Chart
This is an unusual development, the JP Morgan team said. And a reflection of the current weak demand for bitcoin from institutional investors who tend to use regulated CME futures for bitcoin exposure.
Normally, when the demand for bitcoin futures is not low, the futures will trade at a higher price than the spot price, usually around a 10% spot forward spread. However, when price expectations for bitcoin turn bearish, the futures curve slips back, and it did for most of 2018, according to strategists.
We believe the return to the backlash in recent weeks has been a negative signal pointing to a bear market, said Panigirtzoglou and his team. We are therefore reluctant to abandon our negative outlook on bitcoin, they said, until the 21-day moving average of the 2nd CME bitcoin futures spread over the spot returns to positive territory.
The second red flag is bitcoin’s low share in the larger crypto market. The same strategists wrote in May that the sharp drop in bitcoin’s share in April and May, from around 60% to 40%, was a bearish signal. They said this echoed the foam from individual investors in December 2017, when bitcoin’s share fell from around 55% to less than 35%.
We believe that bitcoin’s share in the total crypto market should normalize and possibly exceed 50% (as in 2018) to be more comfortable saying the current bear market is behind us, said L team of JP Morgan.
JP Morgan Chart
The buzz
JBS’s US firm JBSS3, + 0.96% has paid a ransom of $ 11 million in bitcoin to cybercriminals who last week destroyed factories that process about 20% of the US meat supply. The Brazilian food giant said the payment was made to protect against further disruption.
On the U.S. economic front, investors can expect initial jobless claims for the past week at 8:30 a.m. EST, as well as continued jobless claims for the week of May 29 and consumer price index CPI for May. Later, the figures for business start-ups in May and household wealth in the first quarter of the year are expected.
US President Joe Biden and UK Prime Minister Boris Johnson are expected to ease transatlantic travel restrictions linked to COVID-19. With Biden in the UK for the Group of Seven meeting this week, the two leaders are expected to announce a new task force with the aim of reopening travel between the US and UK as soon as possible.
Corporate actions to tackle climate change have yet to have a critical global effect, with none of the major stock market indices on track to meet the widely used goal of keeping global warming below 2. ° C above pre-industrial levels, according to report. In fact, the UK FTSE 100 and US S&P 500 are on temperature trajectories of 3 ° C or more.
The steps
US stock market futures YM00, + 0.22% ES00, + 0.09% NQ00, -0.18% hold ahead of key US inflation report coming later in the morning.
European stocks SXXP, -0.09% UKX, + 0.26% DAX, + 0.06% PX1, -0.19% are mixed but mostly in the green, while Asian stocks NIK, +0.34 % HSI, -0.01% SHCOMP, + 0.54% ended the trading day significantly higher.
Table
Vanda Track chart, via the Irrelevant Investor blog.
In case there is any doubt, the meme trade embodied by stocks like GameStop GME, + 0.85%, AMC AMC, -10.37%, BlackBerry BB, -4.05% and Clover CLOV, -23 , 61% is in full swing. Our chart of the day, from Vanda Track and courtesy of Michael Batnick on the Irrelevant Investor blog, shows the buying habits of individual investors since February 2020.
First it was reopening, then technology, then EVs, then memes stocks, then technology, and now memes stocks again, Batnick said. I expected the trade to stop once the economy reopened and people started to leave their homes. I was wrong. It’s here to stay.
Random readings
Farmers using renewable energy sources, like those who use cow manure, can make 10 times more money using crypto mining machines than selling energy to suppliers.
Baywatch star David Hasselhoff is saving lives again, but not as a lifeguard. The actor was recruited by German health authorities to encourage people to get vaccinated against COVID-19.
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