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06.09.2021 01:42 PM
JPMorgan: current altcoins' rally may be sign of bubble
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Due to the correction of bitcoin, altcoins failed to reach their highs in the second quarter of 2021. However, at the end of July, bulls returned to the crypto market pushing many cryptocurrencies to new highs. ADA, SOL, and ETH were the biggest gainers. Over the past month, the main altcoin has increased in price by 40%. The new stars of the market, Cardano and the coin of the Solana ecosystem skyrocketed by 110% and 287%, respectively. At the same time, judging by indicators, virtual assets are likely to maintain the bullish rally. JPMorgan experts are deeply concerned about this prolonged growth.

They argue that the rapid growth of altcoins is unjustified and leads to the formation of a bubble. Investors should be extremely careful and closely monitor the movements of the entire market, as well as specific altcoins. JPMorgan is confident that the resumption of upward movement of altcoins may undermine the stabilized crypto market, triggering a collapse. First of all, this is associated with an increased market value: the capitalization of altcoins is a third of the total market value. This indicates a rise in demand for altcoins.

Analysts see the main problem in the powerful breakthrough of Solana, which took seventh place in the top 10, as well as the active growth of ETH and ADA. Smaller altcoins also add gains, which indicates a full-fledged rally. The bank's experts believe that the reason for the current bullish sentiment is the excessive activity of the retail investors, which returned to the market after a bearish trend. Retails investors flew back to the crypto market after its recovery. Notably, the steady growth of virtual assets is not bolstered by fundamental factors. In fact, due to excessive demand, the crypto market is a little bit overheated, which may affect the current bullish trend. This is why JPMorgan warns about the likelihood of a steep decline, similar to one that occurred in the summer of 2021.

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Despite the pessimistic forecast from JPMorgan experts, it is extremely difficult to associate the current growth of altcoins only with the activity of retail investors. The on-chain analysis of the main altcoins shows that it was institutional investors who pushed ETH as high as $4,000. Notably, not long ago, the 'London Hard Fork' took place, causing a powerful crypto rally and an influx of both retail and institution investors. Among all cryptocurrencies, the growth of ether is largely justified by fundamental factors. The same can be said about ADA and SOL. These coins are constantly developing, attracting new traders with their frequent updates and advantages of the network. When applying the on-chain analysis, the discrepancy and the lacks of fundamental factors become visible. The current activity does not correspond to the actual situation in the crypto market and the actual quotes of altcoins. However, in the case of ADA, developers are going to undertake a big update of Alonzo. SOL also announced a mysterious update, which has not yet had analogues.

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Perhaps analysts were concerned about the increasing influence of altcoins on the overall market trend. Notably, they expressed similar concerns during the powerful pump of Doge and Shiba, which broke into the top ten and thirty, respectively, due to abnormal activity.

However, such a strong rally of cryptocurrencies may end with the resumption of upward movement for BTC. The coin is trying to break out of the July bear market. If it manages to break through the negative zone, a new cycle of BTC growth may start, which will undoubtedly affect the altcoin market. Bitcoin's dominance will grow along with the quotes, which will increase the pressure on the entire market, except for a few coins. Thus, JPMorgan's fears may be dispelled with the beginning of a bullish trend of BTC and the first correction of the altcoin market.

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Artem Petrenko,
Analytical expert of InstaForex
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