Investing.com — JPMorgan remains wary of cryptocurrency markets, though it managed to recover somewhat after having its worst day since Sam Bankman-Fried's FTX empire collapsed in November 2022.
The flagship cryptocurrency fell more than 15% on Monday before recovering around 5% the next day. The trigger was not specific to the cryptocurrency, but rather the contagion of the correction in traditional risk assets such as stocks.
Last week’s weak US jobs report, coupled with rising unemployment claims, has amplified fears of a US recession. At the same time, the Bank of Japan’s rate hike sparked concerns about a broader unraveling of the yen carry trade. This double hit triggered a correction in risk assets, particularly stocks and cryptocurrencies, and a rally in safe-haven assets such as government bonds, the yen and the Swiss franc.
That said, JPMorgan analysts suggest that a certain cryptocurrency trading firm played a role in the sell-off by liquidating large amounts of ether. Retail investors also contributed to the market chaos, with spot bitcoin ETFs recording their largest monthly outflow in August.
“Momentum-driven traders, including CTAs, have been exiting long positions and accumulating short positions,” JPMorgan noted, exacerbating the decline.
By contrast, broader institutional investors in the futures market have shown limited risk reduction. JPMorgan’s Futures Position Indicator, which tracks total open interest in CME bitcoin futures contracts, suggests as much. The fact that the futures curve remains positive indicates that these investors remain relatively optimistic.
According to JPMorgan, several factors are contributing to institutional optimism. Morgan Stanley now allows its wealth advisors to recommend spot bitcoin ETFs to their clients.
Additionally, the bulk of liquidations stemming from the Mt. Gox and Genesis bankruptcies are likely behind us, and upcoming cash payouts stemming from the FTX bankruptcy could further boost demand in the cryptocurrency market. Both major U.S. political parties have indicated support for favorable cryptocurrency regulation in 2025 and beyond.
Bitcoin recovered from a low of around $49,000, a level that matches JPMorgan's central estimate of the cost of producing bitcoin. “If the price had remained at or below this level for an extended period, it would have put pressure on bitcoin miners, potentially leading to further declines in bitcoin prices,” the Wall Street bank said.
Even with these optimistic signals, JPMorgan believes they have largely been accounted for. “With limited de-risking in the CME bitcoin futures space and equity markets still looking vulnerable, we remain cautious on the cryptocurrency market despite the recent correction,” the report concluded.
