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 $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 LLC 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 fueled “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-fueled 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 U.S. 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 8:30 a.m. in London. The largest cryptocurrency remains some way shy of April’s record of $64,870 after a pullback.