Being volatile in nature, Bitcoin made a U-turn after a record run of 119 days and crossing the $19,300 mark. The cryptocurrency ended last week at $18,196.0.
Bitcoin's recent tumble cleared some speculative "froth" but further declines remain possible, said JPMorgan Chase & Co.
Momentum traders such as commodity trading advisors and other quantitative funds likely played a big role in the slide by unwinding long Bitcoin futures positions, strategists at the investment bank wrote in a 27 November note.
"The previous froth in momentum traders' positioning has been cleared to a large extent," they wrote while adding that momentum signals will continue to deteriorate unless Bitcoin recovers quickly.
The digital currency has had dramatic movements amid COVID-19, surging 293% since March 2020 to over $19,000 and then crashing to $16,277 last Thursday.
Profit-taking and concern about new regulations were among the factors cited for the slump, which doubts over whether digital assets are in an unsustainable bubble.
Bitcoin is still gained about 160% so far this year as some argue that the cryptocurrency was seen as an additional way to diversify a portfolio, a safe haven in times of economic uncertainties like the aftermath of COVID-19 outbreak.
JPMorgan strategists said that investments into and out of the Grayscale Bitcoin Trust will be key, referring to a fund that invests in and tracks the price of Bitcoin. If flows into the trust decline, the price pf the cryptocurrency could suffer.
"A failure by the Grayscale Bitcoin Trust to receive additional inflows over the coming weeks would also cast doubt to the idea that institutional investors such as family offices have embarked on a trend of embracing Bitcoin as digital gold replacing traditional gold as a long-term investment," the strategists wrote.