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Bitcoin, Ether, and other cryptocurrencies posted massive gains this year as the market rally pushed the prices of digital currencies higher. For instance, BTC’s year-to-date return is at 75 percent while ETH’s performance is even higher as the crypto soared around 440 percent since the year started based on data from Coindesk.
But the good times might not last for long, according to a research firm. Vanda Research warned in a report published Monday that a broad crypto market correction could be looming on the horizon, according to Bitcoin.com.
Vanda Research’s partner and senior strategist Ben Onatibia likened the current crypto market situation to that of the 2017 market rally. At that time, Bitcoin’s price soared after rallying for months before the correction happened. At that point, investors shifted to lesser-known cryptos.
“The meteoric rise in cryptocurrencies has a whiff of déjà vu,” Onatibia wrote, according to Business Insider. “When the rally started to look tired in November [2017], investors rotated to lesser-known altcoins like Ripple and Ethereum, which quickly became household names, too.”
This shift to altcoins resulted in XRP reaching a peak on January 8, 2018, while ETH’s held to its gains until mid-to-late January before faltering. “In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit,” he added.
Onatibia believes that the current crypto market is in “precisely the same hot potato game” that took place in the previous 2017 rally. “Under the pretext of institutional support, retail investors started rotating out of speculative retail stocks and pouring their money into bitcoin,” Vanda Research said in its note.
Indeed, Bitcoin reached a new all-time high of $64,829.14 last month before plunging to below $50,000. While BTC is struggling to retake the $60,000 level, ETH continued to climb higher eventually setting a new ATH at $4,382.73 just this week. Retail buyers flocked also flocked to DOGE pushing its YTD return to more than 9,000 percent. For Onatibia, the current situation is similar to what happened at the end of the previous rally.
“Despite Elon Musks' attempt to boost Dogecoin this weekend ... it has failed to climb back to year-to-date highs,” Onatibia said. “If and when Ethereum suffers the same fate, the cryptocurrencies will likely face a wave of redemptions.”
Should the crypto market rally falter, investors are likely to transfer their funds into stocks. “Indeed, open interest data from different crypto exchanges shows that there has been a rotation from Bitcoin to Ethereum since the Coinbase IPO,” he added. “We think a correction in crypto would push retail investors back into equities, where some of their favorite stocks are now trading at a significant discount vis a vis the February highs.”
