Leading financial services firm JPMorgan asserts that Bitcoin and the broader crypto market faces downside risk in the near term.
Over the past few weeks, Bitcoin and the broader crypto market have failed to establish a clear direction amid macroeconomic concerns like persisting inflation and a potential trade war. According to a recent JPMorgan report, relief may not be coming soon—quite the opposite.
JPMorgan Warns of Downside Risk
Leading financial services firm JPMorgan has asserted that the crypto market faces downside risk in the near term.
JPMorgan analysts disclosed this in a note on Wednesday, February 19, citing weak demand from institutional investors. Specifically, they highlighted that CME Bitcoin and Ethereum futures are approaching a state of “backwardation” when futures prices fall below spot prices due to low demand from weak price expectations.
The analysts contended that this lack of demand could expose the market to downward pressure in the short term.
JPMorgan noted that the market showed a similar trend in June and July 2024. Within this period, Bitcoin dropped 26% from highs near $72,000 to as low as $53,500.
What’s driving this lack of demand?
No Short-Term Positive Catalysts and “Momentum Decay”
JPMorgan cited two reasons for the weakening crypto demand among institutional investors.
First, the asset manager noted that this class of investors appears to be taking profits amid a lack of short-term positive catalysts, highlighting that pro-crypto initiatives in the U.S. were unlikely to have any market impact till the second half of the year, leaving investors on the fence.
Secondly, the analysts contended that Bitcoin and Ethereum are facing “momentum decay,” citing a decline in the momentum signal of both assets as momentum-driven funds like commodity trading advisors cut their exposure. They noted that the Ethereum momentum signal was already in the negative.
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