JPMorgan’s Cautious Stance on Crypto Markets

JPMorgan remains skeptical about the crypto markets despite Bitcoin’s slight recovery after experiencing its worst day since the FTX collapse in November 2022.

The flagship cryptocurrency dropped over 15% on Monday but rebounded approximately 5% the following day. This volatility was triggered not by crypto-specific events but by a correction in traditional risk assets like equities.

Recent weak US payroll data and rising jobless claims have heightened recession fears. Concurrently, the Bank of Japan’s rate hike raised concerns about the broader unwinding of the yen carry trade. This combination prompted a sell-off in risk assets, including cryptocurrencies, while boosting safe assets such as government bonds, the yen, and the Swiss franc.

JPMorgan analysts highlighted a specific crypto trading firm’s substantial ether liquidations that may have sparked market chaos, alongside significant outflows from spot bitcoin ETFs in August, due to retail investor panic.

“Momentum traders, including Commodity Trading Advisors (CTAs), have been exiting long positions and increasing short positions,” noted JPMorgan, which intensified the downturn. Conversely, institutional investors in the futures market demonstrated limited de-risking, as suggested by JPMorgan’s futures position indicator tracking open interest in CME bitcoin futures contracts. The positive futures curve indicates relative bullishness among these investors.

Several elements appear to foster institutional optimism. For instance, Morgan Stanley now permits its wealth advisors to recommend spot bitcoin ETFs. Furthermore, the majority of liquidations from Mt. Gox and Genesis bankruptcies seem to be behind us, with forthcoming cash distributions from the FTX bankruptcy potentially boosting crypto market demand. Additionally, both major US political parties have shown support for favorable crypto regulations in 2025 and beyond.

Bitcoin recovered from a low of around $49,000, a price point that aligns with JPMorgan’s estimated cost of bitcoin production. “If prices had remained at or below this level for an extended period, it could have pressured bitcoin miners, possibly leading to further declines in bitcoin prices,” explained the Wall Street bank.

Despite these positive indicators, JPMorgan expresses caution, stating, “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.”