JPMorgan says the recent cryptocurrency plunge and shift into riskier altcoin bets looks a lot like the 2017 collapse

• Crypto's recent plunge bears some resemblance to the 2017 collapse, JPMorgan said.
• The firm's Josh Younger noted that like the end of the 2017 bull cycle, investors are beginning to diversify out of bitcoin and ether and into riskier altcoins.
• But Younger also said the crypto market is more resilient than it was in 2017.

The recent cryptocurrency sell-off that saw bitcoin fall over 50% from its highs looks a lot like the collapse at the end of crypto's previous bull cycle, JPMorgan's head of interest-rate derivatives strategy said.

In a Monday note, Josh Younger said that although the recent run-up in the total cryptocurrency market capitalization was more gradual than the 2017-2018 cycle, the unwind bears some resemblance to the collapse.

The pace and magnitude of the unwind looks "eerily similar" to the previous cycle, he said. And just like in 2017, investors have begun to diversify away from bitcoin and ethereum and into stablecoins and altcoins. As the crypto frenzy continues, investors buy riskier and riskier assets.

This risky pivoting combined with negative momentum signals and institutional outflows "should caution any view that the worst is clearly behind us," Younger warned.

However, he also acknowledged there are a number of differences between the two cycles. This time around, the market hasn't seen the frothiness that stemmed from the frenzy of ICO's (initial coin offerings.)

Also, there's been more institutional sponsorship in this current cycle, continued development and maturation of market infrastructure, broader and cheaper availability of leverage, and the rise of DeFi projects, Younger said.

The strategist concludes that crypto is in the middle of a "sizeable correction," and it's too early to call the bottom, but the resilience of the crypto market structure is a "positive technical backdrop" for a recovery.

"We continue to see evidence of resilient microstructure in cryptocurrency markets: the volatility spike appears somewhat regionally localized, market depth is down but has not cratered despite these moves, and derivatives pricing has managed to adjust quickly enough to retain a decent fraction of the levered long base," Younger said. "This all argues against the view that we are in the midst self-reinforcing vicious cycle of price declines-a classic run scenario."