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Bitcoin's Rally Could Suffer Momentum Decay, Says J.P. Morgan

After predicting bitcoin to reach $146,000, J.P. Morgan analyst Nikolaos Panigirtzoglou is now sounding the bitcoin alarm bell on a build-up of long futures positions.

Bitcoin is facing technical trading resistance pressure from a buildup of long positions in the futures market that could spell big trouble for the world’s biggest cryptocurrency, according to strategists at J.P. Morgan Chase.

In a research note to clients, J.P. Morgan strategist Nikolaos Panigirtzoglou said that if bitcoin isn’t able to break back above the $60,000 mark soon, momentum signals will collapse, in turn leading to a cascading downdraft in bitcoin's value.

“Over the past few days bitcoin futures markets experienced a steep liquidation in a similar fashion to the middle of last February, middle of last January or the end of last November,” Panigirtzoglou wrote, according to a Bloomberg report.

In those three previous instances, the overall flow impulse was strong enough to allow bitcoin to quickly break out above the key thresholds, yielding further buildups in position by momentum traders, the strategist said.

“Whether we see a repeat of those previous episodes in the current conjuncture remains to be seen,” Panigirtzoglou said, adding that the likelihood it will happen again seems lower because momentum decay seems more advanced and in turn more difficult to reverse. 

“Momentum signals will naturally decay from here for several months, given their still elevated level,” Panigirtzoglou said.

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Bitcoin, Ether, XRP and even Dogecoin have shown volatility this week following a weekend rout that saw bitcoin fall by as much as 15%, raising concerns that the 2021 cryptocurrency rally that has pushed bitcoin to successive records may be over.

Bitcoin in particular has surged this year as investors continue to pile into the cryptocurrency game amid expectations that digital currencies - whether they’re used to buy a cup of coffee or a Tesla or bought in mass quantities as a bigger investment in a broader investment portfolio - are here to stay.

Panigirtzoglou himself made headlines at the start of the year when he predicted a long-term price target for bitcoin of more than $146,000 amid institutional demand for the cryptocurrency at the expense of gold, which has traditionally been used as an inflation and volatility hedge, as well as protection against a falling U.S. dollar.

Bitcoin rose as high as $64,870 around the time of the Nasdaq listing of Coinbase Global  (COIN) , but has retreated back below $60,000. At last check, bitcoin was down 1.08% at $55,642, according to CoinDesk. It is still up about 90% year to date.

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