JPMorgan predicts that the recent decline in the crypto market will come to an end, with the downside limited and potentially stabilizing in the short term.
The recent downturn in the crypto market appears to be nearing an end, according to new analysis from JPMorgan Chase & Co.
The company claims that the liquidation of long positions in the crypto world has largely been resolved, and further sharp declines are unlikely. Although there are still repercussions, recent movements in the crypto market suggest that the market's unwinding phase is nearing an end.
Open interest in Bitcoin (BTC) futures contracts traded on the Chicago Mercantile Exchange (CME) indicates that the market correction is almost over. Open interest, a measure of the number of open and active futures contracts, typically indicates when a price trend is weakening. Analysts, including Nikolaos Panigirtzoglou, say the decline in open interest suggests the recent sell-off may be coming to an end.
As a result of this analysis, the JPMorgan team believes that “the downside of the virtual currency market will be limited in the short term.”
Bitcoin has fallen nearly 12% over the past two weeks after maintaining a stable trading pattern for about a month.
At the beginning of the season, the crypto market was buoyed by several potentially positive developments, including a series of filings for the first exchange-traded fund (ETF) in the United States that tracks the spot price of Bitcoin. BlackRock Inc. led this effort.
Additionally, a court ruling in favor of Ripple Labs in its ongoing legal battle with the Securities and Exchange Commission (SEC) encouraged the overall market.
But some of this initial excitement is starting to wear off. Traders are now anticipating a decision on spot approval of the Bitcoin ETF and the SEC's appeal of the court's ruling in favor of Ripple. The outcome, which was not expected until next year, creates “new legal uncertainty” and makes the market highly sensitive to legal and regulatory news.
Interestingly, the report also mentions further triggers for market correction. News that Elon Musk's SpaceX canceled some of its Bitcoin holdings last quarter and concerns about China's growth also played a role in the recent correction in the crypto market.
broader market conditions
This backlash is not limited to cryptocurrencies. This partly reflects a broader correction in risk assets such as equities, driven by “frothy tech positioning and rising U.S. real yields,” according to the research note.
Last Friday, Federal Reserve Chairman Jerome Powell announced his intention to maintain high borrowing costs until inflation convincingly approaches the targets set by policymakers, and is prepared to raise interest rates further if necessary. Risk assets were hit with further turmoil after the Bank suggested that there would be.
All in all, the next few months are likely to be an important period for the crypto market and we will gain further insight into these developments.
