Vanda Research issued a warning on Monday that a broad correction in the cryptocurrency market appears to be brewing. Ben Onatibia, the firm’s partner and senior strategist, said the surge in crypto prices this year bears a striking resemblance to Bitcoin’s 2017 rally, which was followed by a spectacular collapse.
Deja Vu: The Same Hot Potato Game
“The meteoric rise in cryptocurrencies has a whiff of deja vu,” Onatibia wrote in the report. In 2017, when Bitcoin’s rally began to wane, investors rotated into lesser-known altcoins like Ripple (XRP) and Ethereum (ETH). According to historical data, XRP peaked on Jan. 8, 2018, while ETH held its gains for another week or two. In the months that followed, cryptocurrencies cratered as retail investors rushed to the exit.
Onatibia argued that the crypto market is now in “precisely the same hot potato game” that played out in 2017. He explained: “Under the pretext of institutional support, retail investors started rotating out of speculative retail stocks and pouring their money into Bitcoin.” After Bitcoin’s recent peak, retail buyers have flocked to Dogecoin (DOGE) and Ethereum, mirroring the rotation pattern seen four years earlier.
Retail Rotation Under Institutional Narrative
Despite Tesla CEO Elon Musk’s efforts to boost Dogecoin through tweets and a Saturday Night Live appearance, Onatibia noted that Dogecoin has failed to fully recover. “If and when Ethereum suffers the same fate, the cryptocurrencies will likely face a wave of redemptions,” the macro strategist warned.
He further cited open interest data from various crypto exchanges, which shows that there has been a rotation from Bitcoin to Ethereum since the Coinbase IPO. This shift in retail preference signals rising concentration risk, historically a precursor to sharp corrections.
Correction Could Drive Capital Back to Equities
Onatibia opined: “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.” This suggests that a crypto downturn could redirect liquidity to traditional markets, particularly stocks that have already corrected from their peaks.
At press time, Bitcoin is hovering around $50,000 while Ethereum trades above $4,000. However, analysts warn that if Ethereum peaks like altcoins did in 2018, the entire crypto market could accelerate downward. The ‘institutional support’ narrative may mask underlying fragility — when sentiment shifts, liquidity can evaporate quickly.