Is the Crypto Rally Overdone? Analysts Warn of Potential Correction
The crypto market is off to a hot start in November as the rally that began in the middle of October has continued. Bitcoin has climbed to its highest price since May 2022 on hopes of a spot BTC exchange-traded fund (ETF) being launched soon. However, analysts at JPMorgan have cautioned that the crypto rally may be overdone and traders should consider taking profits and preparing for a price correction.
JPMorgan analysts, led by Nikolaos Panigirtzoglou, have identified two catalysts driving the momentum. The first catalyst is the prospect of a spot BTC ETF approval in the U.S. However, the analysts believe that instead of fresh capital entering the crypto industry, existing capital will likely shift from other Bitcoin products to the newly-approved spot Bitcoin ETFs.
The second driving force for recent gains is the legal victories for Ripple and Grayscale in their cases against the SEC. While these rulings do little to clarify the long-term regulatory outlook for the crypto industry, the analysts argue that U.S. crypto industry regulations are unlikely to lessen significantly in the future.
The upcoming Bitcoin halving event, predicted to occur in mid to late April, has also been a topic of hype. Bitcoin proponents believe that the reduction in Bitcoin block rewards leads to a higher price for BTC. However, JPMorgan believes this event has already been priced in and will have little effect on the BTC price.
The analysts cite the cost to mine BTC as a reason for the halving event already being priced in. They warn that the network could see a reduction in hashing power after the halving as miners shut down unprofitable machines. However, they believe this reduction in hashing power is already factored into the current BTC price.
In conclusion, JPMorgan analysts are cautious about the crypto markets going forward, anticipating a potential ‘buy the rumor/sell the fact’ effect following the forthcoming SEC approval of spot Bitcoin ETFs.