On Monday, the cryptocurrency markets experienced their sharpest correction since the FTX crisis, with Bitcoin prices dropping more than 15% before rebounding. According to JPMorgan analysts, the recovery was largely supported by institutional investors, who showed little risk reduction in Bitcoin futures despite the widespread market turmoil.
JPMorgan’s futures position indicator, which tracks cumulative open interest in CME bitcoin futures contracts and the positive slope of the futures curve, suggests a bullish outlook among these investors, JPMorgan analysts led by Managing Director Nikolaos Panigirtzoglou wrote in a report published Wednesday. They said the higher bitcoin futures price premium over spot is a sign of confidence among futures investors.
According to analysts, there are several reasons why institutional investors remain optimistic. Last week, Morgan Stanley allowed asset management advisors to recommend spot Bitcoin exchange-traded funds to some of their clients. Analysts also said that major liquidations from the Mt. Gox and Genesis bankruptcies are likely over, and that cash payments from the FTX bankruptcy later this year could boost demand in the crypto market. Furthermore, both major U.S. political parties have voiced support for favorable crypto regulation, they added. However, analysts noted that these positive catalysts have had a big impact.
Bitcoin price rebound
Bitcoin price recovered from around $49,000 to over $57,000 after Monday’s sharp correction. The analysts said the $49,000 level is in line with JPMorgan’s median estimate of the cost of producing bitcoin, which is around $45,000. “If bitcoin price had stayed at this level for a longer period of time or fallen below it, it would have put pressure on bitcoin miners, which would have put more downward pressure on the bitcoin price,” the analysts noted.
According to analysts, the sharp decline in Bitcoin is not due to crypto-related issues, but rather to contagion from the correction in traditional risky assets such as stocks. However, analysts point out that a certain cryptocurrency trading company contributed to the decline by liquidating a significant amount of Ether, according to media reports. They did not directly name the company, but it appears to be Jump Crypto.
While institutional investors helped support Bitcoin’s rally, retail investors contributed to its decline, with spot Bitcoin ETFs experiencing their largest monthly outflows since their launch earlier this year, according to analysts. Momentum traders, such as commodity trading advisors, also played a role by closing long positions and opening short positions, the analysts said.
Overall, JPMorgan analysts remain cautious on the cryptocurrency market despite the recent correction. The positive catalysts mentioned above have been largely factored in, and risk reduction in the CME Bitcoin futures market has been limited, combined with continued weakness in equity markets, and analysts suggest maintaining a cautious outlook.
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