FX.co ★ JPMorgan warns about bitcoin bear market

Bitcoin continues to recover from its recent lows, logged earlier this week after the FBI investigation and the ban of the Chinese authorities on mining in some regions of the country.

Nevertheless, the world's central banks continue to study the impact of cryptocurrencies on the economy and markets in general, as well as introduce capital requirements for banks working with cryptocurrency.

The recent announcement by the Basel Committee on Banking Supervision is another sign that the market is rapidly changing, prompting central banks to adapt. This is why they have shifted their focus to the crypto market. Strict capital controls are not the goal of the regulator. It does not intend to tie the hands of financial institutions planning to work with crypto assets. On the contrary, it is taking the fast-growing cryptocurrency market seriously and is preparing the banking sector to adhere to it.

In the statement, the regulator also expressed concern about the risks to the financial stability of many countries associated with the extreme volatility of the cryptocurrency and the possibility of money laundering and other criminal schemes. However, investors are already tired of hearing this from politicians, who do not stop voicing their concerns about potential risks

In a recent interview, Massachusetts Democratic Senator Elizabeth Warren called the cryptocurrency market "The Wild West". She said that digital currency is not the best way to buy and sell things, nor is it a good investment. Bitcoin can only lead to an ecological disaster because of the way it is mined. Elon Musk also voiced the same concerns last month, but he could not give proof of it.

As for positive news, the central banks of Switzerland and France have joined forces with commercial banks to experiment with digital currency. UBS Group AG, Credit Suisse Group AG, Accenture Plc, and Natixis SA are among the private-sector players involved. The project was launched under the auspices of the Innovation Center at the Bank for International Settlements. The project will consider international settlements for two digital currencies of central banks, including the exchange for the digital euro CBDC. "The G20 has made enhancing cross-border payments a priority. This experiment contributes to this work by exploring how wholesale CBDC could enhance speed, efficiency, and transparency in cross-border use cases."

Meanwhile, analysts at JPMorgan found signs of bitcoin moving into a bear market. Experts have recorded a sharp decline in demand from large investors of the CME exchange. It is not surprising that after such high volatility in May, the number of traders who want to buy cryptocurrency has decreased. According to analysts, a decline in the bitcoin dominance index is a warning signal. "We believe that the return to backwardation in recent weeks has been a negative signal pointing to a bear market," JPMorgan strategists led by Nikolaos Panigirtzoglou wrote in a note. They added that Bitcoin's relatively depressed share of total crypto market value is another concerning trend.

In my recent review, I drew attention to this problem and talked a lot about the high probability of growth in the capitalization of ether. Its resilience to market volatility may be the reason that the second-largest digital token could one day overtake bitcoin in market value. Bitcoin is currently more than twice the size of ether but the gap has narrowed by about $350 billion after the biggest sell-off seen in the middle of this month. While bitcoin notched the worst drop in its history, the sell-off of ether was not as large as many feared. It seems that investors are reviewing their attitude to this trading instrument, especially given its recent growth.

As for the technical analysis, BTC managed to bounce back from a low of $31,000. So, now it needs to break above the important resistance level of $36,300. If BTC fails to break above this range in the near future, then bears are likely to take the upper hand. It will eventually lead to a breakout of the $31,000 level. If so, BTC may decline to the lows of $25,800 and $21,700. If bitcoin consolidates above $36,300, then bulls will gain momentum. Then, BTC is expected to break above the resistance level of $41,100, which has not been reached this month. If it manages to break this level, it may well test the highs of $46,700 and $52,000.