The crypto markets have seen a strong Fall thus far, with Bitcoin pumping 27% in October, its strongest month since January. However, analysts at JPMorgan are unconvinced that this rally is sustainable.
In a research note published last week, JPMorgan analysts led by Nikolaos Panigirtzoglou outlined several reasons why they are skeptical about the recent crypto surge. Their main arguments center around two key narratives that have driven optimism in the crypto space: the prospect of a spot bitcoin ETF approval in the U.S., and the idea that recent legal defeats for the SEC could lead to more lenient regulations.
Many in crypto believe that the approval of a spot bitcoin exchange-traded fund (ETF) in the U.S. could unlock a wave of fresh investments into the space. However, JPMorgan analysts disagree with this premise.
“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 analysts wrote.
They point out that spot bitcoin ETFs already exist in Canada and Europe but have failed to garner much interest from investors since launching. As such, JPMorgan believes a US spot ETF is unlikely to attract significant new interest. Some have even warned of a Bitcoin crash following any ETF approval in the U.S.
Some in crypto also believe that recent legal defeats for the SEC, such as in the Ripple lawsuit, suggest the regulatory climate could become more favorable. However, JPMorgan analysts contend this is wishful thinking.
“It is far from clear that the regulatory tightening of the crypto industry will lessen significantly going forward given how unregulated this industry is,” they wrote.
The analysts believe memories of the FTX collapse mean lawmakers are unlikely to ease their stance, regardless of the SEC’s legal troubles. With major regulations still pending, the regulatory outlook remains challenging. Outside of JPMorgan’s analysis, the crypto industry still has to contend with major SEC action against Binance and Coinbase . Either case ending favorably for the SEC could spark a market retreat.
Looking ahead, some crypto proponents believe the upcoming bitcoin halving event in 2024 could drive further upside.
The bitcoin halving, occurring approximately every 4 years, involves a deliberate reduction in the reward for mining new bitcoin blocks from 6.25 to 3.125 bitcoin per block. This will control the overall supply of bitcoins, with a fixed total supply of 21 million, aiming to gradually decrease new supply as adoption increases, potentially driving up demand and prices.
However, JPMorgan analysts remain unconvinced, asserting that the halving is predictable and well-understood, indicating that it has probably already been factored into Bitcoin’s current value.
Overall, while short-term momentum may push crypto higher, JPMorgan sees risks of a “buy the rumor, sell the fact” dynamic as the actual impact of developments like a spot ETF approval play out. For now, they remain cautious about the sustainability of the recent crypto rally.