NEW YORK, June 17 (Xinhua) -- The eye-catching surge of cryptocurrency prices since the start of the COVID-19 pandemic may have come to an end as gravity kicks in, an expert with research firm MRB Partners said Thursday.
"Based on the past two bitcoin cycles it suggests that the pandemic-induced crypto bull market may have come to an end, as this digital space is undergoing an unwinding of overbought price conditions," said Santiago Espinosa, strategist of absolute return and foreign exchange with MRB Partners.
Likening investment narratives in cryptocurrencies in late 2020 to those in the tech bubble in the late 1990s, Espinosa said the first gravity kicked in with environmental problems becoming the mainstream and regulations from China becoming harsher.
Though bitcoin now is no longer overbought technically after recent price corrections, it is just at a neutral level with more consolidation expected, Espinosa said.
Other cryptocurrencies, which outperformed bitcoin in this cycle, remain cyclically overbought and should continue to digest their gains in the pandemic, according to MRB Partners.
Statistics show that the bitcoin price has roughly halved and has been trading sideways for about one month from a record high of 64,788 U.S. dollars set in April.
Speaking at a webinar, Espinosa said: "I'm not suggesting that because bitcoin is no longer overbought, this is a good entry point to get into bitcoin ... And to ignite another rally, you would need a significant catalyst."
At this juncture, it is hard to articulate or argue that there is another big bull market in cryptos coming and "there's no catalyst that I can foresee right now that could do that," said Espinosa.
From a momentum and evaluation standpoint, there is still a lot more consolidation expected, Espinosa said.
The current exuberant rally of cryptocurrencies should be best treated as a mania-type bubble, rather than being reflective of any underlying improvement in the fundamentals, according to MRB Partners.
The fiat or traditional currencies are not going to go away, and they are not going to be replaced by cryptocurrencies, said Espinosa.
It requires further clarity on how the U.S. regulators are going to handle regulatory issues before making cryptocurrencies part of the investment portfolio, the expert said.
The crypto universe has reached critical mass in terms of asset size, but this industry remains in its early development stages. Market participants should keep in mind risks like increasing competition among cryptocurrencies, vulnerability in conversion into fiat currencies, loss of private keys from fraud and uncertainty in governmental policies, according to MRB Partners. Enditem