Is there a crypto bubble?

After the 2017 peak, the price crashed by 84% over the next year before beginning a slow recovery.

This time analysts are suggesting the price drop is unlikely to be as severe, in large measure because of substantial institutional buying power now being firehosed into cryptos.

But the parabolic rise in the bitcoin price over the last month puts it into seriously overbought territory, and a correction is overdue.

The flow of institutional money into bitcoin could get a whole lot bigger should the US Securities Exchange Commission approve a bitcoin exchange-traded fund (ETF) this year.

While this should be positive for bitcoin in the longer term, in the near term it could have a negative impact on price, according to a recent report from JP Morgan.

Many institutions hunting for exposure to bitcoin are required to do so by buying shares in Grayscale Bitcoin Trust, for which they pay a premium to net asset value.

JP Morgan argues the arrival of a bitcoin ETF would reduce this premium and result in some of these institutions selling out of Grayscale once the six month lock-up period expires.

While that might hurt the bitcoin price in the short term, there seems little prospect of a drop similar to that of 2018.

According to this analysis by Investtech.com, bitcoin’s price has broken out of its rising channel, which is a positive indicator.

“This signals an even stronger growth rate. There is no resistance in the price chart and further rise is indicated. In case of a negative reaction, the stock has support at approximately $19 000.”

“Notwithstanding bitcoin and the broader market’s momentum since October 2020, it ought to be noted that January is, on average, the second most volatile and third worst-performing month on record.

Not to mention, when looking at historical first quarter returns, one can see that the first quarter is typically a negative yielding period for bitcoin,” says Kraken Intelligence.

Bitcoin ‘whales’ – those with more than 100 bitcoin – accumulated an additional 47 500 bitcoin during the cryptocurrency’s ruthless December rally.

This was accompanied by bitcoin buyers taking purchases offline, storing crypto assets in ‘cold’ wallets (disconnected from the internet, to safeguard against hacking). This is a signal that they have little intention of selling.

In prior bull markets, bitcoin has traded up anywhere from 10 to 15 times its 200-week moving average, which is currently around $8 000.

If history is any guide, this would imply a price of between $79 040 and $118 560, says Kraken Intelligence.