Bitcoin retreats from $40,000 level strategists view as key

Bitcoin retreated further from the $40,000 level on Monday, a decline that could portend more losses based on the latest analysis from strategists at JPMorgan Chase & Co.

The cryptocurrency could be hurt by an exodus of trend-following investors unless it can “break out” above $40,000 soon, a team including Nikolaos Panigirtzoglou said. The pattern of demand for Bitcoin futures and the $22.9 billion Grayscale Bitcoin Trust will help determine the outlook, they added.

“The flow into the Grayscale Bitcoin Trust would likely need to sustain its $100 million per day pace over the coming days and weeks for such a breakout to occur,” the strategists wrote in a note on Friday.

Traders seeking clues about investor appetite for risk have been gripped by Bitcoin’s stunning rally and turbulent 12% slide from a record of almost $42,000 on Jan. 8. The cryptocurrency boom since March embodies the ebullience in financial markets awash with stimulus to fight the impact of the pandemic -- as well as the concern that some of these gains may prove unsustainable.

The JPMorgan strategists said Bitcoin was in a similar position in late November, except with $20,000 as the test. Flows of institutional investment into the Grayscale trust helped the world’s largest cryptocurrency extend its rally, they wrote.

Trend-following traders “could propagate the past week’s correction” and “momentum signals will naturally decay from here up till the end of March” if Bitcoin’s price fails to break above $40,000, they said.

Bitcoin dipped about 4% to $35,100 as of 1:14 p.m. in Tokyo on Monday. Ether, another popular digital coin, shed 5% to $1,200.

Exactly what’s driven the yearlong near-quadrupling in Bitcoin’s price remains murky. Commentators have cited day traders, wealthy buyers, hedge funds, companies and even signs of interest from long-term investors like insurers.

Bitcoin’s proponents argue it’s maturing as a hedge for dollar weakness and the possibility of faster inflation in a recovering global economy. Others say its defining characteristic remains speculative booms followed by busts.