Investing.com — JPMorgan remains wary of cryptocurrency markets, although it managed to rebound somewhat after suffering its worst day since the collapse of Sam Bankman-Fried’s FTX empire in November 2022.
The flagship cryptocurrency fell more than 15% on Monday before rebounding about 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.
Weak US employment figures last week, along with rising jobless claims, have amplified fears of a US recession. At the same time, the Bank of Japan’s rate hike has raised concerns about a broader unwinding of the yen carry trade. This dual impact has triggered a correction in risk assets, particularly stocks and cryptocurrencies, and a rally in safe 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 selloff by liquidating large amounts of ether. Retail investors also contributed to the market chaos, with spot Bitcoin ETFs seeing their largest monthly outflow in August.
“Momentum traders, including CTAs, exited long positions and accumulated short positions,” JPMorgan noted, exacerbating the slowdown.
In 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, suggests as much. The futures curve remaining positive indicates that these investors remain relatively bullish.
According to JPMorgan, several factors are contributing to the optimism among institutions. Morgan Stanley now allows its wealth advisors to recommend spot Bitcoin ETFs to their clients.
Additionally, the bulk of the liquidations from the Mt. Gox and Genesis bankruptcies are likely behind us, and upcoming cash payments from the FTX bankruptcy could further boost demand in the cryptocurrency market. Both major U.S. political parties have indicated their support for cryptocurrency-friendly regulation in 2025 and beyond.
Bitcoin has rebounded from a low around $49,000, a level that coincides with JPMorgan’s central estimate of bitcoin’s cost of production. “If the price had remained at or below this level for an extended period, it would have put pressure on bitcoin miners, which could have led to further declines in bitcoin prices,” the Wall Street bank said.
Despite these optimistic signs, JPMorgan believes they are largely priced in. “With limited risk reduction 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 concludes.
