JPMorgan Analysts Say “Institutional Demand Is Low”, List Expectations for Bitcoin and Ethereum

JPMorgan analysts have warned of potential downside risks in the cryptocurrency market as institutional demand for CME Bitcoin and Ethereum futures continues to weaken.

According to a report published Wednesday by JPMorgan analysts led by managing director Nikolaos Panigirtzoglou, the total cryptocurrency market cap has fallen 15% from an all-time high of $3.72 trillion on Dec. 17 to around $3.17 trillion. This significant correction has resulted in CME Bitcoin and ETH futures approaching a “downtrend,” a situation where futures prices fall below spot prices, similar to trends observed last June and July.

“This is a negative development and an indication of weak demand from institutional investors who use regulated CME futures contracts to gain exposure to these two cryptocurrencies,” the analysts said.

Typically, when demand for Bitcoin and Ethereum futures is strong, these contracts trade at a premium to spot prices, a situation known as “contango.” This premium, which often exceeds 10% annually, reflects the high “risk-free” rate in crypto markets where dollar lending can yield between 5% and 10% annually, JPMorgan analysts explained. However, when demand and price expectations weaken, futures prices could fall below spot prices, as seen in mid-2023.

JPMorgan attributes the declining demand for CME Bitcoin and Ethereum futures to two key factors. First, some institutional investors are taking profits amid a lack of immediate positive catalysts. Analysts say major regulatory initiatives related to crypto by the new U.S. administration are unlikely to occur before the second half of the year, prompting investors to adopt a wait-and-see approach.

Second, momentum-focused funds, such as commodity trading advisors, are reducing their exposure, further dampening demand. “Both Bitcoin and Ethereum momentum signals have been downshifting over the past few months, and the Ethereum momentum signal has already entered negative territory,” the report said.