Investing.com -- JPMorgan is still wary of crypto markets, even though Bitcoin managed to bounce back a bit after having its worst day since Sam Bankman-Fried's FTX empire crashed in November 2022.
The flagship cryptocurrency tumbled over 15% on Monday before rebounding around 5% the next day. The trigger was not crypto-specific but rather contagion from the correction in traditional risk assets such as equities.
Last week's weak US payroll report, along with rising jobless claims, has amplified fears of a US recession. At the same time, the Bank of Japan's rate hike sparked concerns about a broader unwinding of the yen carry trade. This dual impact triggered a correction in risk assets, particularly equities and cryptos, and a rally in safe assets such as government bonds, the yen, and the Swiss franc.
That said, JPMorgan analysts suggest that a certain crypto 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 seeing their largest monthly outflow in August.
"Momentum traders, including CTAs, have been exiting long positions and building up short positions," JPMorgan noted, exacerbating the downturn.
In contrast, broader institutional investors in the futures market have shown limited de-risking. JPMorgan's futures position indicator, which tracks the total open interest in CME bitcoin futures contracts, suggests this. The futures curve staying positive indicates that these investors remain relatively bullish.
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.
Moreover, the bulk of 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 crypto market. Both major political parties in the US have indicated support for favorable crypto regulations in 2025 and beyond.
Bitcoin rebounded from a low of around $49,000, a level that coincides with JPMorgan's central estimate of the cost of bitcoin production. "If the price had remained at or below this level for a prolonged period, it would have pressured bitcoin miners, potentially leading to further declines in bitcoin prices," the Wall Street bank explained.
Even with these upbeat signs, JPMorgan believes they are largely factored in. "With limited de-risking in the CME bitcoin futures space and equity markets still appearing vulnerable, we remain cautious on the crypto market despite the recent correction," the report concluded.