JPMorgan Chase: Demand for BTC and ETH futures weakens, crypto market faces short-term downside risk

On February 20th, analysts including Nikolaos Panigirtzoglou, Managing Director of JPMorgan Chase, wrote in a report on Wednesday that the total market value of cryptocurrencies has fallen by 15% from its historical high of $3.72 trillion set on December 17 to around $3.17 trillion.

This decline led to Bitcoin and Ethereum futures on the Chicago Mercantile Exchange (CME) nearing a "spot premium", i.e., futures prices are lower than spot prices, mirroring the situation in June and July last year.

Due to weakened demand for Bitcoin and Ethereum futures on CME from institutions, JPMorgan believes that the cryptocurrency market faces downside risks in the short term. Analysts explained that when demand for Bitcoin and Ethereum futures is strong, they usually trade at prices higher than spot prices - a state known as "contango". When demand and price expectations weaken, futures may fall below spot prices just like what happened in June and July last year.

JPMorgan analysts attribute weakening demand for CME's Bitcoin and Ethereum futures to two key factors.

Firstly, due to lack of direct positive catalysts some institutional investors seem to be taking profits. Analysts said it is unlikely that the new U.S government will launch major initiatives related to cryptocurrencies before the second half of this year; thus investors will remain watchful.

Secondly, momentum-driven funds such as commodity trading advisors have been reducing exposure further suppressing demand. The analysts stated: "Over past few months both bitcoin’s & ethereum’s momentum signals have been falling with ethereum’s momentum signal having moved into negative territory."