The crypto market experienced a severe correction, but the price of Bitcoin has rebounded to over $57,000, supported by institutional investors, according to JPMorgan. Institutional investors have maintained their positions, helping to stabilize the market, with JPMorgan’s futures indicators showing optimism among TradFi. Several factors, such as Morgan Stanley’s support for Bitcoin Spot ETFs and the end of major liquidations from Mt. Gox and Genesis, have boosted the confidence of institutional investors. Last Monday, the crypto market experienced its most severe correction since the FTX crisis, with a significant drop in the price of Bitcoin before a notable rebound. This recovery was primarily supported by institutional investors, according to JPMorgan analysts.
The Role of Institutional Investors in Market Rebound
Unlike retail investors, institutional investors have shown little to no de-risking in Bitcoin futures contracts, despite market volatility. This behavior is believed to have played a crucial role in the stabilization and recovery of Bitcoin prices. JPMorgan’s futures position indicator, which tracks the cumulative open interest in CME Bitcoin futures contracts as well as the positive slope of the futures curve, suggests optimism among these investors.
Factors of Confidence
Several factors explain this optimism. First, Morgan Stanley recently allowed its wealth advisors to recommend Bitcoin Spot ETFs to some of their clients. Additionally, major liquidations resulting from the bankruptcies of Mt. Gox and Genesis are likely behind us, and cash payments from the FTX bankruptcy later this year could boost demand in the crypto market. Both major US political parties are also signaling support for crypto-friendly regulations.
Impact on Bitcoin Prices
The price of Bitcoin has rebounded to over $57,000 after falling to around $49,000. This $49,000 level corresponds to JPMorgan’s central estimate of the production cost of one BTC, which is around $45,000. If the price of Bitcoin had remained at this level or continued to decline over an extended period, it would have put pressure on Bitcoin miners, leading to additional downward pressure on prices.
Causes of the Initial Drop
The sharp drop in Bitcoin was not due to specific issues with cryptocurrencies but rather contagion from a correction in traditional risk assets like stocks. However, media reports suggest that a particular crypto trading firm contributed to this decline by liquidating substantial amounts of Ether. While JPMorgan analysts did not directly name the firm, it appears to be Jump Crypto.
Behavior of Retail Investors
Alongside institutional investor support, retail investors may have contributed to the decline, with Bitcoin Spot ETFs recording their highest monthly outflow since their launch earlier this year. Additionally, commodity traders have also played a role by exiting long positions and initiating short positions. Despite the recent correction and mentioned positive factors, JPMorgan analysts maintain a skeptical view of the crypto market. With the positive catalysts already largely priced in and a lack of notable risk aversion in the CME Bitcoin futures space, combined with persistent vulnerability in equity markets, they recommend maintaining a cautious perspective on cryptocurrencies.
