Analysts at J.P. Morgan, the largest bank in the United States, have compelling reasons to believe that a long-term surge in the price of Bitcoin and other digital currencies is unlikely, at least for the foreseeable future.
According to Barron’s, on Wednesday, Bitcoin experienced a 4.5% drop from $37,860 to a low of $36,160 and has not managed to recover its position before this fall. Meanwhile, on Tuesday, an upward movement began in the US stock market, which continued until Wednesday; A jump that was clearly influenced by the publication of positive inflation statistics on November 14.
Decreasing inflation is always considered a positive sign for the US central bank to stop raising interest rates, which can reduce the pressure in the market of risky assets such as stocks and digital currencies.
Now, the poor performance of cryptocurrencies compared to the stock market raises questions about the underlying reasons for the recent jump in the price of these assets. Nikolaos Panigirtzoglou and several other JP Morgan analysts have recently pointed out in a note that the recent growth of Bitcoin and digital currencies has been more than reasonable and they have put forward reasons for it.
The main reason for the recent jump in prices was investors’ hopes that the US Securities and Exchange Commission would soon approve the launch of the first exchange-traded fund or Bitcoin Cash ETF. The assumption of a part of the market is that with the approval of these ETFs, a new wave of capital will be formed in the market, and at the same time, it is a sign of the softening of the country’s legislators against these assets. But Panigirtzaglu thinks that this situation may not be sustainable.
He says about this:
Aside from entirely new capital flowing into cash ETFs that may be approved in the future, a more likely scenario is [instead of new capital] capital in existing financial products that are somehow tied to Bitcoin, such as the BitFund. GrayXil’s coin, futures ETFs and shares of companies active in the field of Bitcoin mining, enter the newly approved ETFs.
Panigirtzaglu also pointed out that there are currently cash ETFs in Canada and Europe, but investors have shown little interest in these financial products.
Despite the SEC’s defeat against Ripple over the XRP token, as well as the review of Grayscale’s request to convert its Bitcoin fund into a cash ETF, JP Morgan analysts still don’t buy into the idea that US regulators are softening their view of digital currencies.
Given that the cryptocurrency industry remains largely lawless, it is unlikely that regulatory pressures will ease significantly in the near future. Legislation of the digital currency industry in the US is still pending, and we do not believe in the idea that US lawmakers will change their stance.
JP Morgan analysts have also mentioned the Bitcoin halving event, which is supposed to happen in April next year, after which the reward for mining each block will be halved and will decrease from 6.25 to 3.125 units.
The general idea is that the upcoming halving will make the supply of new bitcoins less than before and thus will help the price of this digital currency to grow. This argument does not seem convincing in our opinion, because the Bitcoin halving event is completely predictable and its effect on the price is already included.
The fifth reason of JP Morgan analysts, and perhaps the most negative of them, is that the factors behind the decline of Bitcoin and digital currencies in the past years are still present in the market. Cryptocurrency winter began in earnest after the collapse of the Terra Network and UST Stablecoin, and reached another critical point after the bankruptcy of cryptocurrency exchange FTX. JP Morgan has identified these crises as negative factors, along with the lack of a clear legal situation, the decrease in the interest of large investors to enter the market, the decrease in the volume of activities in the Ethereum network, the fall in the market value of stablecoins, and the decrease in the volume of venture capital investments (on startups in this field). which are still in the market.
Panigirtzaglu said in the end:
All these negative factors are still in place and as a result hinder the further growth of digital currencies. In addition, our analysis shows that investor sentiment is similar to the era before the FTX bankruptcy or the collapse of the Terra network, and the sum of these perceptions makes us cautious about the future of digital currencies.