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JPMorgan Analysts Say Bitcoin Rally ‘Overdone’, Question Crypto Market Fundamentals

In a report released on Wednesday, JPMorgan analysts expressed skepticism about the sustainability of the recent surge in Bitcoin prices, asserting that the substantial gains appear “overdone” when compared to the cryptocurrency’s underlying fundamentals.

Led by Nikolaos Panigirtzoglou, the analysts pointed to two key factors driving Bitcoin’s 30% price increase in the past month: the anticipation of approval for a spot Bitcoin exchange-traded fund (ETF) in the United States and legal victories in the cryptocurrency sector against the Securities and Exchange Commission (SEC). Despite these developments, the analysts remain unconvinced that these factors adequately justify the extent of the recent Bitcoin rally.

Bitcoin Rally’s Sustainability Questioned

The analysts express skepticism regarding both the identified catalysts behind the recent cryptocurrency rally.

“Instead of fresh capital entering crypto markets, we see existing capital in bitcoin products shifting into newly approved spot bitcoin ETFs,” they noted.

Nikolaos Panigirtzoglou specifically highlighted the limited inflows into spot bitcoin ETFs in Canada and Europe, even after their launch, suggesting that the potential for significant inflows into newly approved spot bitcoin ETFs in the US might be limited despite optimistic expectations.

The analysts also raised doubts about whether recent legal setbacks would lead to a relaxation of the Securities and Exchange Commission’s (SEC) regulatory stance.

“U.S. crypto industry regulations are still pending, and we do not believe U.S. lawmakers would shift their stance because of the legal cases, especially with the memories from the FTX fraud still fresh,” the analysts stated.

Bitcoin Price Surge Seen as Overdone

JPMorgan dismisses another potential upside catalyst for Bitcoin—the upcoming ‘halving’ event in 2024, which decreases the supply of new bitcoins. The analysts believe that this event is already factored into the current Bitcoin price.

“This argument seems unconvincing as the bitcoin halving event and its effect are predictable and, in our opinion, are well factored into bitcoin price,” the report explained.

In summary, JPMorgan identifies risks that the recent surge in Bitcoin may lose momentum due to unstable fundamentals. The analysts express caution regarding the cryptocurrency markets, citing the possibility of a ‘buy rumor, sell fact’ decline following any approval of a spot Bitcoin ETF.

The report coincides with Bitcoin’s current trading value near $36,000, reflecting a more than 110% increase year-to-date following a challenging 2022 where the cryptocurrency experienced a 64% decline. Despite this year’s rebound, Bitcoin is still trading approximately 48% below its all-time high, nearly reaching $69,000 in November 2021.

Cryptocurrency markets have shown susceptibility to significant sell-offs, exemplified by the recent collapse of FTX, which wiped out over $200 billion in crypto market value, impacting major cryptocurrencies like Bitcoin and Ethereum.

While some investors view the upcoming Bitcoin halving and the potential approval of a US spot Bitcoin ETF as favorable catalysts, JPMorgan remains cautious, emphasizing prevailing risks over the possibility of a sustained rally. As of now, the banking giant is maintaining a conservative stance amid the ongoing dynamics of the crypto market.

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Cryptocurrency is essentially virtual money that operates in a decentralized manner, not through a bank but directly on multiple independent computers.

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