Cryptocurrency markets are facing increasing downward pressure as institutional demand for CME futures for both Bitcoin and Ether continues to weaken, according to a recent report from JPMorgan. This decline in investment appetite has led to growing concerns about the future of digital currencies, especially in the absence of positive catalysts that support market stability. Market cap declines and correction risks increase
The cryptocurrency market cap has seen a sharp 15% decline, falling from its all-time high of $3.72 trillion on December 17 to $3.17 trillion today. This significant correction has been accompanied by a decline in the prices of both Bitcoin and Ether futures compared to spot prices, reflecting weak institutional demand. JPMorgan analysts noted that this trend is reminiscent of what happened in June and July, when futures saw a similar decline, putting downward pressure on the market. A negative indicator of weak institutional demand
The report explained that Bitcoin and Ether futures are typically traded at a premium to spot prices when there is strong demand from institutional investors, a situation known as contango, where the premium often reaches 10% per annum. This is due to high US dollar lending rates, which provide returns of 5% to 10% per annum. However, the current situation reflects weak demand, as futures have fallen below spot prices, which is a negative indicator of institutional investor sentiment. Factors behind weak institutional demand for Bitcoin and Ether
JPMorgan analysts attribute the decline in institutional interest in Bitcoin and Ether contracts to two main factors. The first is the lack of positive catalysts, as institutional investors prefer to take profits in the absence of market-supporting developments. Also, the expected regulatory decisions from the new US administration are unlikely to be issued before the second half of the year, pushing investors into a wait-and-see mode.
The second factor is the decline in investment momentum, as momentum-based investment funds, such as commodity trading advisors (CTAs), have tended to reduce their investment positions in Bitcoin and Ether, which has contributed to increased selling pressure. The report noted that the momentum signals for both Bitcoin and Ether have declined significantly over the past two months, with Ether’s momentum already entering negative territory, reinforcing the market’s downward trend. Expectations of more pressure on cryptocurrency markets
In light of these developments, JPMorgan warned that selling pressures on cryptocurrency markets will continue in the near term, especially if no new catalysts emerge to restore institutional investor confidence. With the ongoing uncertainty, cryptocurrencies may face further declines in the absence of factors supporting a market recovery.