Take profit on bitcoin: liquidity, volatility and Elon Musk’s tweets stop the rally

The unstoppable rally of bitcoin took a break on monday and has left a correction that has widened to 12% on Tuesday, when the queen of ‘cryptos’ has lost $ 50,000, after climbing to a new milestone in the vicinity of $ 58,500 over the weekend. The market is sending signals of exhaustion, with a price that has tripled in less than a month based on a volume of investments of just $ 11 billion from a group of Wall Street companies, raising an eyebrow from experts and analysts, and even Elon Musk himself, the instigator of the buy-in with Tesla’s corporate movement, calls into question the high.

In a recent tweet, the founder of the electric vehicle company noted that the prices of Satoshi Nakamoto’s creation “they seem tall”, after calling them a “less silly” version of cash. “This seems to have been taken by some as a take profit signal “says Craig Erlam, an analyst at Oanda. “Musk has seen his influence grow in the crypto space and Tesla’s position has only increased it in recent weeks. Speculators are clearly on his every word.”

Musk’s new intervention is accompanied by some $ 1 billion profit with his investment of 1,500 million that the tycoon made public on February 8, but that dates back to several operations during the month of January. He is not the only one that warns that the price boom seems exaggerated considering the total flow of institutional money.

Bitcoin has multiplied by eight since last March and has added more than $ 700 billion in market value since September. But JPMorgan questions the proportionality of this behavior since its limited supply – based on the “miners” producing a certain number of new coins – has caused holders to charge a premium for the bitcoin that goes to market. According to his analysis, retail flows may have also magnified institutional flows. Currently around 78% of the bitcoins issued have been lost or are being held with very little intention of selling them. This leaves less than 4 million bitcoins to distribute among future market participants, including large institutional investors such as PayPal, Square, S&P 500 companies and exchange-traded funds, according to blockchain data provider Glassnode and ‘..’

Furthermore, bitcoin prices and its role as a reserve asset and a rival to gold are not sustainable unless the strong swings of the cryptocurrency quickly subside, JP Morgan experts stress. In the last three months he has submitted a 87% volatility vs. 16% for gold And at the current exchange rate, the digital currency has already doubled the three-month volatility of the digital currency to gold in terms of venture capital, the investment bank’s analysts emphasize.

To all the above, JP Morgan also adds the problem of the decrease in liquidity in the market of the world’s largest cryptocurrency, which has deteriorated. “The market liquidity is currently much lower for bitcoin than for gold or the S&P 500, which implies that even small flows can have a great impact on the price “, argue the experts of the US investment bank. This context opens the possibility that the cryptocurrency experiences strong lurching, depending how the demand for digital assets behaves.

The trading volumes of crypto assets are about 10 billion dollars Daily for the spot and futures market combined, compared to an equivalent figure of $ 100 billion for gold, reported from JP Morgan. This is consistent with “much lower liquidity in bitcoin than in precious metal”, they assert.

Cryptocurrencies have had a strong start to the year. Bitcoin faithful argue that corporate treasurers and institutional investors are new sources of demand and that the token can serve as a hedge against imminent risks such as a rebound in inflation. Others consider it to be an example of speculative furor fueled by hedge funds and traders in a context of markets flooded with monetary stimulus from the authorities against the Covid crisis.

Either way, most analysts bet that purchases will resume until the price of $ 100,000 is reached. Not to mention that the real resistance is in the area of ​​$ 170,000 – $ 200,000, according to technical analysis. There are even fund managers who venture that in the long term a million dollars will be paid for each bitcoin and that it will be a world reserve like gold.

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