The latest survey by Bank of America in May showed that Bitcoin is currently the most crowded transaction on Wall Street, but that claim has been refuted. Zero hedging points out that this is impossible because Wall Street institutions simply cannot participate heavily in Bitcoin speculation due to the limitations of the bitcoin asset class structure.

In addition, JPMorgan points to another reason why Bitcoin is by no means the most crowded trading: institutional investors are moving from Bitcoin to traditional gold over the past two quarters.

Nick Panigirtzoglou, a quantitative analyst at JPMorgan Chase, explained:

Bitcoin liquidity continues to deteriorate and institutional investors will continue to withdraw funds. In the past month, the bitcoin futures market has experienced its fastest and more lasting liquidation since the boom began last October. "

As the Bitcoin futures position agent of JPMorgan Chase shows below, this is not what the "most crowded trading" should look like, he said.

As Figure 7 shows, retail inflows into Q1 this year accelerated sharply in dollar terms from the previous quarter, while inflows from institutional investors increased only modestly; by Q2, inflows from retail investors halved, while institutional investors turned negative, or outflows.

Figure 8 shows the number of bitcoins. In terms of bitcoins, the number of coins held by retail investors was stable in the first three quarters, while institutional investors reduced their holdings significantly, and Q2 even turned negative this year.

Panigirtzoglou noted that momentum traders such as CTA and encryption funds were at least one of the evacuees over the past month. He added:

"this sell-off is likely to continue in the coming weeks as our short-term retrospective momentum signal has fallen further into negative territory for the first time since March 2020."

Panigirtzoglou explained that this was important because everyone was eager to find signs that they were oversold under yesterday's wave of reckoning. He said:

"when these momentum signals change from positive to negative, we usually observe sudden changes in asset prices. Since the momentum signal for a long retrospective period is still in a positive region, Bitcoin may still be quite some way from being oversold. "

Panigirtzoglou said that a drop in the price of bitcoin to $26000 would automatically turn the indicator negative.

At the same time, he found that while money flowed out of bitcoin funds, the inflow of gold ETF, reversed the outflow trend in the fourth quarter of 2020 and the beginning of the year, as shown in Figure 4.

Figure 5 shows that while Bitcoin futures are cleared, long positions in gold futures are increasing.

According to JPMorgan, this suggests that institutional investors seem to be switching from bitcoin to traditional gold, reversing the trend of the previous two quarters, but it is not clear what caused them to turn:

Perhaps because institutional investors foresee the end of Bitcoin's upward trend in the first two quarters, to prevent a sharp fall in Bitcoin, they are turning to more stable gold.

Or they may think that the current price of bitcoin is too high relative to gold, so they have taken the opposite approach to the previous two quarters, selling bitcoin and buying gold.

Another striking finding in the JPMorgan report is that its estimated fair value of bitcoin should be close to $35000.

The fair value model is based on the assumption that the Bitcoin / gold volatility ratio is close to 4. As a result, JPMorgan believes that the current market valuation of bitcoin is significantly too high.