JPMorgan says bitcoin rebound supported by institutional investors

On Monday, the cryptocurrency markets faced their sharpest correction since the FTX crisis, with bitcoin's price dropping over 15% before rebounding. According to JPMorgan analysts, this recovery was primarily supported by institutional investors, who showed limited to no de-risking in bitcoin futures despite the broader market turmoil.

JPMorgan's futures position indicator, which tracks cumulative open interest in CME bitcoin futures contracts, along with the positive slope of the futures curve, suggests a bullish outlook among these investors, JPMorgan analysts, led by managing director Nikolaos Panigirtzoglou, wrote in a report on Wednesday. A higher bitcoin futures price premium over spot indicates confidence from futures investors, they said.

There are several reasons for institutional investors to remain optimistic, according to the analysts. Last week, Morgan Stanley allowed its wealth advisors to recommend spot bitcoin exchange-traded funds to some of their clients. Additionally, major liquidations from the Mt. Gox and Genesis bankruptcies are likely behind us, and upcoming cash payments from the FTX bankruptcy later this year could boost demand in the crypto market, the analysts said. Furthermore, both major U.S. political parties are signaling support for favorable cryptocurrency regulations, they added. However, the analysts noted that these positive catalysts are largely factored in.

Bitcoin price rebound

The bitcoin price has rebounded to over $57,000 from around $49,000 following Monday's sharp correction. The $49,000 level aligns with JPMorgan's central estimate of bitcoin production cost of about $45000, the analysts said. "If the bitcoin price had stayed at or declined below this level for a more prolonged period of time, that would have put pressure on bitcoin miners, which in turn would have exerted further downward pressure on bitcoin prices," the analysts noted.

The dramatic decline in bitcoin wasn't driven by crypto-specific issues but rather by contagion from a correction in traditional risk assets like equities, according to the analysts. However, media reports suggest that a particular crypto trading firm contributed to the downturn by liquidating substantial amounts of ether, the analysts noted. While they did not name the firm directly, it appears to be Jump Crypto.

While institutional investors helped support bitcoin's rebound, retail investors contributed to the decline, with spot bitcoin ETFs experiencing their largest monthly outflow this month so far since their launch earlier this year, according to the analysts. Additionally, momentum traders, such as commodity trading advisors, played a role by exiting long positions and initiating short positions, the analysts said.

Overall, the JPMorgan analysts remain cautious about the crypto market despite the recent correction. With the positive catalysts mentioned above largely factored in and limited de-risking in the CME bitcoin futures space, combined with ongoing vulnerability in equity markets, the analysts suggest maintaining a cautious outlook.