Market Overview
On Monday, the cryptocurrency market experienced its sharpest drop since the FTX crisis. Bitcoin’s price fell over 15% but later rebounded. According to JPMorgan analysts, this recovery was supported mainly by institutional investors. These investors showed limited to no de-risking in bitcoin futures despite the broader market turmoil.
Institutional Investors’ Role
Institutional investors played a crucial role in supporting the bitcoin price rebound. JPMorgan’s futures position indicator, which tracks cumulative open interest in CME bitcoin futures contracts, along with the positive slope of the futures curve, suggests a bullish outlook among these investors. A higher bitcoin futures price premium over spot indicates confidence from futures investors, the analysts said.
Positive Catalysts
Several factors have contributed to the optimism among institutional investors:
- Morgan Stanley’s Support: Last week, Morgan Stanley allowed its wealth advisors to recommend spot bitcoin exchange-traded funds to some of their clients.
- Major Liquidations Behind Us: Major liquidations from the Mt. Gox and Genesis bankruptcies are likely over, and upcoming cash payments from the FTX bankruptcy later this year could boost demand in the crypto market.
- Political Support: Both major U.S. political parties are signaling support for favorable cryptocurrency regulations.
However, the analysts noted that these positive catalysts are largely factored in.
Bitcoin Price Rebound
Bitcoin’s price rebounded to over $57,000 from around $49,000 after Monday’s sharp correction. The $49,000 level aligns with JPMorgan’s central estimate of bitcoin production cost of about $45,000, the analysts said. If the bitcoin price had stayed at or declined below this level for a more extended period, it would have put pressure on bitcoin miners, leading to further downward pressure on bitcoin prices.
Contagion from Traditional Risk Assets
The dramatic decline in bitcoin wasn’t driven by crypto-specific issues but rather by contagion from a correction in traditional risk assets like equities. However, media reports suggest that a particular crypto trading firm contributed to the downturn by liquidating substantial amounts of ether. While the analysts did not name the firm directly, it appears to be Jump Crypto.
Retail Investors and Momentum Traders
While institutional investors helped support bitcoin’s rebound, retail investors contributed to the decline. Spot bitcoin ETFs experienced their largest monthly outflow this month since their launch earlier this year. Additionally, momentum traders, such as commodity trading advisors, played a role by exiting long positions and initiating short positions.
Cautious Outlook
Despite the recent rebound, JPMorgan analysts remain cautious about the crypto market. With the positive catalysts largely factored in and limited de-risking in the CME bitcoin futures space, combined with ongoing vulnerability in equity markets, the analysts suggest maintaining a cautious outlook.
Bitcoin Futures and Institutional Confidence
JPMorgan’s futures position indicator tracks the cumulative open interest in CME bitcoin futures contracts. The positive slope of the futures curve indicates a bullish outlook among institutional investors. A higher bitcoin futures price premium over spot shows confidence from futures investors.
Morgan Stanley’s Move
Last week, Morgan Stanley allowed its wealth advisors to recommend spot bitcoin exchange-traded funds (ETFs) to some clients. This move is seen as a positive step for the cryptocurrency market and has contributed to the optimism among institutional investors.
Impact of Past Bankruptcies
The major liquidations from the Mt. Gox and Genesis bankruptcies are likely behind us. These events had previously put downward pressure on bitcoin prices. However, upcoming cash payments from the FTX bankruptcy later this year could boost demand in the crypto market.
Political Support for Cryptocurrency Regulations
Both major U.S. political parties are signaling support for favorable cryptocurrency regulations. This political backing is another factor contributing to the positive sentiment among institutional investors.
Bitcoin Production Cost
The $49,000 level aligns with JPMorgan’s central estimate of bitcoin production cost of about $45,000. If the bitcoin price had stayed at or declined below this level for a more extended period, it would have put pressure on bitcoin miners, leading to further downward pressure on bitcoin prices.
Contagion from Traditional Risk Assets
The recent decline in bitcoin wasn’t driven by crypto-specific issues but by contagion from a correction in traditional risk assets like equities. Media reports suggest that a particular crypto trading firm contributed to the downturn by liquidating substantial amounts of ether. The firm is believed to be Jump Crypto.
Retail Investors’ Impact
Retail investors played a significant role in the recent decline of bitcoin. Spot bitcoin ETFs experienced their largest monthly outflow since their launch earlier this year. Momentum traders, such as commodity trading advisors, also contributed by exiting long positions and initiating short positions.
Maintaining a Cautious Outlook
Despite the recent rebound, JPMorgan analysts remain cautious about the crypto market. The positive catalysts mentioned earlier are largely factored in, and there is limited de-risking in the CME bitcoin futures space. Additionally, ongoing vulnerability in equity markets suggests a need for a cautious outlook.
Institutional investors played a vital role in supporting the recent bitcoin price rebound. JPMorgan’s analysis indicates a bullish outlook among these investors, supported by factors such as Morgan Stanley’s move to recommend spot bitcoin ETFs, the end of major liquidations from past bankruptcies, and political support for favorable cryptocurrency regulations. However, retail investors and momentum traders contributed to the recent decline, and analysts suggest maintaining a cautious outlook despite the positive catalysts largely being factored in. The recent decline in bitcoin was more due to contagion from traditional risk assets rather than crypto-specific issues.
