Parabolic jumps in digital tokens such as ether, dogecoin and binance coin are outshining bitcoin, prompting more questions about whether that segment of the cryptocurrency sector is ripe for a reckoning.
The rallies have contributed to a slump in bitcoin’s share of the US$2.6-trillion crypto market to 43% from about 70% at the start of 2021, a metric that for strategists at JPMorgan Chase & Co and DataTrek Research may be a warning sign of investor excess in a range of digital tokens.
Bitcoin’s waning dominance carries echoes of “froth” to the extent it’s being fuelled “by a rally in other cryptocurrencies driven more by retail demand”, a JPMorgan team led by Nikolaos Panigirtzoglou wrote in a note Friday. DataTrek’s co-founder Nicholas Colas has indicated that history suggests tokens outside bitcoin can drop “pretty quickly” when bitcoin’s share hits 40%.
Plenty of commentators have been fretting for some time that a stimulus-fuelled peak is at hand in cryptocurrencies — only to see them rally even more. But the worry is hard to shake in a sector that defies traditional investment analysis.
The share of the largest cryptocurrency could be declining because investors are getting more comfortable with a wider array of tokens. Alternatively, retail traders may be chasing quick, speculative gains.
“Even if you don’t invest in the space, this is worth tracking,” DataTrek’s Colas wrote in a recent note. He added that with more than $2-trillion now invested in virtual currencies, “a meaningful reset lower could also affect more traditional financial assets like equities”.
For the JPMorgan team, the possible retail-driven froth in cryptocurrencies is a reminder of late 2017, when a crypto boom peaked.
Among the most notable moves in the crypto market Monday was ether’s jump past $4 000 for the first time after a climb of more than 2 000% in the past year. The JPMorgan team said an analysis of activity on the affiliated Ethereum blockchain suggests a lower fair value of $1 000 for the token.
Dogecoin, which started as a joke in 2013 but is now a dominating Internet meme and sitting on a 20 000% advance in the past year, captured the headlines over the weekend.
First off, billionaire Elon Musk cited the token again, this time in a much-touted television appearance on the US show Saturday Night Live. Later it emerged that the cryptocurrency is apparently being used to pay for a lunar satellite launch with SpaceX, Musk’s commercial rocket firm.
Bitcoin was up 1.7% Monday at about $58 887 as of 8.30am in London. The largest cryptocurrency remains some way shy of April’s record of $64 870 after a pullback. — Reported by Joanna Ossinger, (c) 2021 Bloomberg LP