JPMorgan analysts have cast a skeptical eye over the recent crypto rally, indicating it may be built on sand rather than solid ground. Their latest report conveys a guarded stance, suggesting that the market’s exuberance may be outpacing the underlying fundamentals. As the market...
A Closer Look At ETF Approval And Regulatory Battles
These events include anticipating a US-approved spot Bitcoin ETF, which has ignited hopes of new capital inflows. At the same time, recent legal tussles involving the SEC have raised expectations for a more permissive regulatory environment.
However, the JPMorgan team, led by analyst Nikolaos Panigirtzoglou, presents a contrarian view, deconstructing these drivers and their probable impact on the market. They argue that an ETF approval would usher in fresh capital, which might be misleading.
The analysts propose that rather than attracting new investment; the approval could redirect existing funds from current Bitcoin investment products into the new ETFs. The JPMorgan team noted:
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.
Legal victories against the SEC in high-profile cases like Ripple and Grayscale are also interpreted as potential precursors to a regulatory softening. Yet, the analysts remain unconvinced, citing the lingering aftereffects of the FTX scandal and the inherent risks of an under-regulated market.
They further disclosed that these factors will likely keep the regulatory tightening trend intact, with little room for significant easing.
Bitcoin Halving: A Pre-Priced Crypto Event?
The report delves into the much-discussed Bitcoin halving, which traditionally stokes bullish forecasts. However, JPMorgan’s analysts believe the market has already factored in the halving’s supply-squeeze implications. They noted:
This argument seems unconvincing as the Bitcoin halving event and its effect are predictable and in our opinion are well factored into Bitcoin price.
They calculate that based on current data, the production cost of Bitcoin post-halving should double, particularly from the current $ $21,000 to $43,000.
Their analysis concludes with a sobering outlook, anticipating a potential “buy the rumor, sell the fact” scenario post-ETF approval. Such a dynamic could see prices climb on anticipation and plummet once the event materializes, a pattern familiar to seasoned market observers.
Schiff warns that post-approval, Bitcoin might face a shortage of positive triggers, potentially culminating in a market sell-off as the ‘buy the rumor, sell the news’ phenomenon unfolds.
How many times can #Bitcoin rally on the same ETF rumor? Once a U.S. Bitcoin EFT is approved, or $GBTC is able to convert into an ETF, there will be no more “good” news for Bitcoin to rally on. After years of buying the rumor, everyone will finally be able to sell the news.— Peter Schiff (@PeterSchiff) October 16, 2023
Featured image from Unsplash, Chart from TardingView