JP Morgan Urges Caution as Crypto Rally Looks “Overdone”

Analysts at JP Morgan have said the rally in the crypto market is “overdone”, making them doubt the sustainability of the ongoing trend.

The analysts led by Nikolaos Panigirtzoglou wrote in a report on Wednesday that said the rally has been fueled mainly by two factors, the first being the hopes for a Bitcoin ETF approval, which could attract more investments into the crypto industry, especially from institutional investors. 

According to the analysts however, a Bitcoin ETF isn’t likely to accomplish what it is expected to achieve.

“First, instead of fresh capital entering the crypto industry to be invested in the newly-approved ETFs, we see as a more likely scenario existing capital shifting from existing bitcoin products such as the Grayscale bitcoin trust, bitcoin futures ETFs and publicly listed bitcoin mining companies, into the newly-approved spot bitcoin ETFs,” the JPMorgan analysts said.

The analysts argued that spot Bitcoin ETFs already exist in Canada and Europe with little effect on the industry, which makes them doubt that a new ETF in the U.S. can change the status quo.

Another factor that is driving the rally according to the report is the recent victory of Ripple against the SEC in court. While this is considered to be a victory for the industry, the analysts don’t believe it can lead to leniency in future dealings of regulators towards the crypto industry.

“It is far from clear that the regulatory tightening of the crypto industry will lessen significantly going forward given how unregulated this industry is,” the analysts said. “U.S. crypto industry regulations are still pending and we do not believe U.S. lawmakers would shift their stance because of the above two legal cases especially with the memories from the FTX fraud still fresh.”

Halving Won’t Change Anything

Bitcoin halving is an event that happens once in roughly four years. It’s a time when the amount of Bitcoin coming into circulation is reduced by half, and has historically led to a market rally in its wake. 

This is a reason why investors are optimistic about the future of crypto, especially between 2024 and 2025. The analysts however said the event isn’t going to mean much as its effect has already been priced in during this year’s rally, as “the bitcoin halving event and its effect are predictable.”

“For example, looking at the bitcoin production cost after the halving event using current hash rates and difficulty would suggest that the production cost would rise from $21,000 currently to around $43,000. However, the current price at around $35,000 would be consistent with around a 20% drop in the hash rate as miners in higher cost locations or with less efficient hardware exit the market, which seems reasonable to us. This suggests that the halving event could already be largely in the price,” they added.

They have therefore advised caution going forward as long as the crypto market is concerned, since the rally may have reached its peak.

Other Analysts Disagree

Indeed, there are spot Bitcoin ETFs in Canada and Europe which have not succeeded in attracting more investments into the industry. 

However, according to Fundstrat co-founder Tom Lee, a spot Bitcoin ETF is what will make the difference and if approved, could result in Bitcoin rising to $180,000 potentially. It remains to be seen though if the market is impacted when an ETF finally gets a nod from the SEC.

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