JPMorgan Warns of Continued Crypto Pressure Amid Market Skepticism

JPMorgan strategists have expressed their expectation that cryptocurrency markets, including Bitcoin, will continue to face pressure in the near term. This outlook is supported by several recent developments and market indicators that suggest ongoing challenges for the crypto sector.

The market experienced a brief rally following former President Trump’s announcement to potentially include XRP, Solana (SOL), and Cardano (ADA) in a strategic crypto reserve alongside Bitcoin and Ethereum. However, this announcement was met with skepticism, particularly regarding the feasibility of adding smaller, more volatile tokens to such reserves and the likelihood of congressional approval. Similar discussions at the state level have also faced resistance, with several states rejecting the idea due to concerns over risk and volatility.

Global central banks, including the Swiss National Bank and the National Bank of Poland, have opted for more stable and secure reserve assets, with Poland choosing traditional assets like gold. The European Central Bank has also been critical of Bitcoin reserves, reflecting broader skepticism among policymakers about the adoption of cryptocurrencies as reserve assets. This skepticism is further supported by the recent downturn in the crypto market, exemplified by February’s nearly 20% drop in Bitcoin’s price and record outflows from spot Bitcoin ETFs, indicating significant retail investor involvement in the correction.

Institutional investors have also shown a reduction in their positions, attributed to an absence of positive market catalysts and a decay in momentum. This is evidenced by a modest decrease in open interest changes in CME futures contracts for Bitcoin and Ethereum, suggesting potential for further position unwinding, especially as momentum traders begin to accumulate short positions. Another indicator of waning demand in the crypto sector is the recent issuance of $2 billion in convertible debt by Strategy, which has raised concerns about market saturation.

Since the U.S. election, companies like Strategy and Bitcoin mining firms have raised substantial capital through equity and debt offerings, contributing to Bitcoin’s price increase. However, the terms of these deals have become increasingly more investor-friendly over the past month or so, indicating that investors are becoming more cautious and more selective. Strategy’s latest debt offering featured a lower conversion premium and a three-year put option, aimed at attracting investors amidst a 40% drop in its stock price since its November peak. This drop, alongside the broader crypto market weakness, will likely reduce even further the appetite for debt/equity issued by Strategy/bitcoin miners going forward.