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- JPMorgan has pointed out the weakening demand for Bitcoin and Ethereum futures as prices decline below the spot prices.
- The reason has been linked to profit-taking actions by institutional investors and the reduction in exposure by momentum-driven funds.
The crypto market has currently staged a marginal rebound as Bitcoin returns to $97k. According to market data, the asset has surged from the $93k recorded in the past few days to this level. However, the total market cap remains 15% down from the $3.72 trillion recorded on December 17, 2024.
While investors deliberate on the next line of action, JPMorgan has dropped a huge bombshell, claiming that the CME Bitcoin and Ether futures are approaching what is termed as “backwardation.” Economically, this situation represents the decline of futures prices below the spot price.
According to the JPMorgan analysts led by managing director Nikolaos Panigirtzoglou, the market is imitating the June and July 2024 movements. Technically, this situation also implies a general decline in demand for the underlying assets.
This is a negative development and indicative of demand weakness by those institutional investors that use regulated CME futures contracts to gain exposure into these two cryptocurrencies.
Shedding more light on this, it was explained that strong demand for Bitcoin and Ether futures usually trades at a premium to spot prices. The premium is usually attributed to the high risk-free rate in the market. In this case, lending USD produces a yield of 5%-10% annually.
Reasons for the Weakened Demand for Bitcoin and Ether Futures
Explaining the reason for the current market situation, JPMorgan pointed out that the weakened demand could be due to two main factors.
Firstly, institutional investors have taken profit-taking actions against the lack of positive catalysts in the market. Meanwhile, the new US administration’s most price-determining initiatives are expected to be seen in the second half of the year. The second reason is the significant reduction in exposure by momentum-driven funds, which include commodity trading advisors.
Both bitcoin and ethereum momentum signals have been downshifting over the past couple of months with the ethereum momentum signal having shifted already into negative territory.
This analysis comes after JPMorgan earlier predicted that stablecoin issuer Tether could sell its non-compliant assets, including Bitcoin. As highlighted in our previous article, this initiative is based on the recently introduced bills: the Stablecoin Transparency and Accountability for a Better Ledger Economy (STABLE) Act and the Guiding and Establishing National Innovation for U.S. Stablecoins (GENIUS) Act.
Joining the discussion, an analyst identified as Jason Pizzino recently echoed a similar sentiment, highlighting that the market could be preparing for a downward trend. As detailed in our last news piece, this analyst confirmed that Bitcoin’s interest has significantly declined as Google search volume for the asset falls to 24 out of 100.
In the report, Pizzino pointed out that the general trading volume of Bitcoin on various exchanges has also dropped to $37 billion from the $130 billion recorded in the previous high.
In a different post, the current market trend was attributed to the ongoing repayment exercise by the infamous FTX exchange. As we covered in our latest report, FTX claims of under $50,000, representing $1.2 billion, are being distributed to creditors who may likely liquidate them after years of traumatizing experience.
