- Bitcoin has stumbled in November, falling as much as 12% and reversing October's strong rally.
- Bitcoin's price decline can continue into year-end as crypto positioning remains overbought, JPMorgan said in a note last week.
- These are the two reasons why the crypto rally stalled in recent weeks, according to JPMorgan.
But according to a November 24 note from JPMorgan, the weakness in bitcoin prices likely stems from a slowdown in fund flows into recently launched bitcoin futures ETFs. Those ETFs saw a surge in October, with the ProShares Bitcoin Strategy BITO ETF becoming the fastest ETF ever to reach $1 billion in assets under management.
After that record-setting pace, inflows came to a near standstill in November, with the BITO ETF seeing its AUM edge up from $1.2 billion at the start of the month to $1.3 billion as of Friday.
"What is more disappointing is that the stalling in bitcoin fund inflows in November took place as physical gold ETFs continued to bleed," JPMorgan's Nikolaos Panigirtzoglou said. Bitcoin is viewed by many as a "digital gold" alternative to physical gold, thanks to its fixed supply and the widely held investor belief that it is an inflation hedge.
Another reason for the recent weakness in bitcoin's price has to do with investor positioning in the cryptocurrency hitting overbought levels, according to the note. "Our bitcoin position proxy based on CME futures had spiked in September/October to overbought levels last seen in February 2021," Panigirtzoglou explained.
Those overbought levels will serve as a headwind for bitcoin going forward, JPMorgan said, which could limit upside pressure in a price rally until they moderate. When bitcoin last hit overbought levels in February, the price extended its gains through April but then experienced a multi-month drawdown of about 50%.
And after bitcoin hit its most oversold levels of the year in October, the price rallied nearly 30%, highlighting the potential for big returns when traders go against the crowd.