JPMorgan Expects Cryptocurrency Market Sell-Off to Ease

Recent Downturn in Cryptocurrency Markets Nearing an End

JPMorgan Chase & Co. predicts that the recent downturn in the cryptocurrency markets is coming to a close. The company’s analysis suggests that the liquidation of long positions in the cryptocurrency world has mostly resolved, making further sharp declines unlikely. This indicates that the market unbundling phase is reaching its end.

Bitcoin Futures Open Interest Signals Market Correction’s Conclusion

JPMorgan’s analysis also points to the open interest in Bitcoin futures traded on the Chicago Mercantile Exchange (CME) as a sign that the market correction is almost over. Open interest is a measure of active and unsettled futures contracts and typically indicates a weakening price trend. Analysts have observed a drop in open interest contracts, implying a potential end to the recent sell-off.

Based on this analysis, JPMorgan expects limited downside for the cryptocurrency markets in the near term.

Bitcoin’s Recent Drop and Favorable Developments

In the past two weeks, Bitcoin has experienced a drop of nearly 12% after a month of flat trading. Previously, the cryptocurrency market was energized by several favorable developments, including orders for the first US exchange-traded funds (ETFs) linked to the spot price of Bitcoin. BlackRock Inc. led this charge.

Additionally, a court ruling in favor of Ripple Labs in its legal battle with the Securities and Exchange Commission (SEC) boosted market confidence.

Factors Contributing to the Market Correction

However, some of the initial excitement has subsided as traders now anticipate decisions on instant approvals for the Bitcoin ETF and the SEC’s appeal against the court ruling in favor of Ripple. This uncertainty has led to heightened market reactions to legal and regulatory news. Other catalysts for the market correction include Elon Musk’s SpaceX writing off some Bitcoin holdings and concerns about growth in China.

Broader Market Conditions Impacting Cryptocurrencies

The decline in cryptocurrencies is not isolated, as it coincides with a broader correction in risk assets like equities. This correction is driven by concentration in technology and rising real yields in the US.

Last Friday, risky assets experienced further turmoil after Federal Reserve Chairman Jerome Powell signaled a willingness to raise interest rates if necessary to maintain higher borrowing costs until inflation aligns with policymakers’ target.

The upcoming months will be crucial for the cryptocurrency market as they provide more insight into these dynamics.

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