November 9, 2023 at 12:27 GMTModified date: November 9, 2023 at 12:27 GMT
November 9, 2023 at 12:27 GMT

JPMorgan analysts doubt recent crypto market surge

According to them, the “crypto rally looks overdone” as they had their scepticism about the sustainability of this rally.

JPMorgan analysts doubt recent crypto market surge

Analysts at the American multinational financial services firm expressed their concerns regarding the ongoing cryptocurrency market surge which has taken a majority of the top coins to the green.

According to them, the “crypto rally looks overdone” as they had their scepticism about the sustainability of this rally.

JPMorgan outlined a number of factors which it believes are contributing to the rally in crypto markets over the past few months. This ranged from a potential approval of spot Bitcoin ($BTC) exchange-traded funds (ETF) in the US to the upcoming Bitcoin halving event.

Prospect of a spot Bitcoin ETF

The analysts focused on how the industry expected new money to enter the crypto markets following the approval of a spot Bitcoin ETF in the US. 

Last month, Galaxy Digital Head of Firmwide Research, Alex Thorn, had speculated how this could play out. According to him, the ETF could see a minimum of $14.4billion of inflows in year one, which would swell to $38.6bn inflows in three years. “At those levels, BTC/USD could see 75% appreciation the year following approvals”, said the top executive in post on X (formerly Twitter).

A greenlight from the Securities and Exchange Commission (SEC) would be seen as a victory for the crypto industry and a loss for the regulator. It could also give way to a more lenient approach by the SEC in future.

However, JPMorgan analysts were not too sure about the same as they remained “sceptical” of both these factors or arguments. They said:

“First, instead of fresh capital entering the crypto industry to be invested in the newly-approved ETFs, we see as a more likely scenario existing capital shifting from existing bitcoin products such as the Grayscale Bitcoin trust, Bitcoin futures ETFs and publicly listed bitcoin mining companies, into the newly-approved spot Bitcoin ETFs.”

They then reiterated the stance that they took back in July when they questioned the approval to be a ‘game changer’. In doing so, they talked about similar spot Bitcoin ETFs in Canada and Europe that did not attract significant interest post their launch, leading them to ponder on whether the US ETFs will be any different.

SEC’s legal case

The second major driving factor for the rally has been the recent defeats of the SEC in its legal cases against Ripple and Grayscale

Despite these losses, the analysts doubt that there will be a significant easing of crypto regulations in the US. Expanding on this, they brought the issue of the industry’s largely unregulated status and the recent memory of the FTX fraud.

“It is far from clear that the regulatory tightening of the crypto industry will lessen significantly going forward given how unregulated this industry is. US crypto industry regulations are still pending and we do not believe U.S. lawmakers would shift their stance because of the above two legal cases especially with the memories from the FTX fraud still fresh.”

Bitcoin halving event

The last reason behind the optimism in the crypto market is the upcoming Bitcoin halving event, scheduled to happen around April/May 2024. 

Many in the industry expect it to lead to an increase in Bitcoin’s price due to a reduced supply of new coins. However, JPMorgan analysts believe that the effects of the halving are predictable and likely to be already factored into the current Bitcoin price.

They then used an example of Bitcoin’s production cost post-halving to illustrate that the current price seems to already account for the expected decrease in the hash rate:

“For example, looking at the bitcoin production cost after the halving event using current hash rates and difficulty would suggest that the production cost would rise from $21,000 currently to around $43,000. However, the current price at around $35,000 would be consistent with around a 20% drop in the hash rate as miners in higher cost locations or with less efficient hardware exit the market, which seems reasonable to us. This suggests that the halving event could already be largely in the price.”

Therefore, in laying out these points, the analysts revealed that they are “cautious on crypto markets going forward”. They believe that there is a high chance that the market may be experiencing a “buy the rumour, sell the fact” situation. Their doubt about the long-term sustainability of the rally particularly stood strong on the back of a potential approval of spot Bitcoin ETFs.