JPMorgan: Bitcoin's Rally This Round Is Largely Thanks to Institutional Investors

On Monday, the cryptocurrency market suffered its sharpest pullback since the FTX crisis, with the price of bitcoin dropping more than 15% at one point before rebounding, The Block reports. Analysts at JPMorgan said the rebound was largely thanks to institutional investors, who have had limited, if any, de-risking of bitcoin futures despite the overall market turmoil. Analysts at JPMorgan wrote in a report on Wednesday that JPMorgan's futures position indicator suggests a bullish outlook for these investors. Bitcoin futures prices are trading at a higher premium to spot, suggesting futures investors are confident, they said.

According to analysts, there are many reasons for institutional investors to remain optimistic. Last week, Morgan Stanley allowed its wealth advisors to recommend spot bitcoin exchange-traded funds to some of their clients. In addition, analysts say that the massive liquidation of the Mt. Gox and Genesis bankruptcies may be behind us, and the cash payout from the FTX bankruptcy later this year could spur demand in the cryptocurrency market. In addition, they added that both major U.S. political parties have expressed support for favorable cryptocurrency regulation. However, the analysts noted that these positive catalysts have largely been taken into account by the market.

The analysts also noted that this round of Bitcoin's sharp decline was not caused by cryptocurrency-specific issues, but rather by a pullback in traditional risk assets such as stocks. While institutional investors have helped support Bitcoin's rally, retail investors have also fueled the decline. Additionally, momentum traders such as commodity trading advisors played a role by exiting long positions and establishing short positions. Overall, despite the recent correction, JPMorgan analysts remain cautious on the cryptocurrency market. Given the aforementioned positive catalysts largely factored in and limited risk reduction in the CME Bitcoin futures space, coupled with the continued fragility of the equity markets, analysts recommend maintaining a cautious outlook.