JPMorgan Warns of Crypto Market Headwinds Amid Retail Investor Profit-Taking

• JPMorgan’s cautious stance on digital assets underscores concerns over the fading retail interest and significant outflows from U.S. spot Bitcoin ETFs.
• Bitcoin options data suggests a potential summer slowdown in the cryptocurrency market, with traders anticipating low volatility.

Wall Street banking giant JPMorgan stated that it is keeping a cautious stand on digital assets in the near term amid the lack of any stimulus and the retail interest disappearing in the short term. JPMorgan also added that retail investors were net sellers during the last month of April with the U.S. spot Bitcoin ETFs recording massive outflows in the last two weeks, per the Crypto News Flash report.

The banking giant highlighted three headwinds that can create further turbulence which include high bitcoin prices versus gold and versus the estimated Bitcoin production cost, elevated positioning, and subdued crypto venture capital (VC) funding.

In recent weeks, the cryptocurrency markets have also seen significant profit booking with retail investors contributing majorly in the sell-off instead of institutional investors. In April, the Bitcoin (BTC) price tanked by a staggering 16%, its biggest-ever monthly fall after the FTX collapse of November 2022, per the Crypto News Flash report.

On Wednesday, investors offloaded U.S.-based spot bitcoin ETFs at an unprecedented rate. The 11 ETFs collectively experienced a net outflow of $563.7 million, marking the largest withdrawal since they commenced trading on January 11th.

JPMorgan analysts led by Nikolaos Panigirtzoglou wrote: With regards to institutional investors, “it has been mostly momentum traders such as commodity trading advisors (CTAs) or other quantitative funds taking profit on previous extreme long positions in both bitcoin and gold”.

Moreover, a look into the futures market shows a “more limited position reduction by other institutional investors outside quantitative funds and CTAs”.

Bitcoin Options Data Hints at Summer Slowdown

Approximately 23,000 BTC options are nearing expiration, featuring a Put Call Ratio of 0.49, a Maxpain point of $61,000, and a combined notional value of $1.4 billion.

Bitcoin derivatives traders are preparing for a quiet market season during the summer, as suggested by an analyst. “Summers typically exhibit low volatility, prompting traders to adjust their positions accordingly, depending on their outlook,” the analyst noted. Bitcoin’s implied volatility has notably decreased since mid-April. This trend is reflected in charts from The Block’s Data Dashboard, indicating a decline in the implied volatility of bitcoin at-the-money options from over 77% to under 60% for one-week, one-month, and multi-month expiries.

During periods of reduced trading volumes, volatility may escalate due to liquidity gaps in the market. While summers typically tend to be relatively quiet, as observed in equities markets, significant instances such as the DeFi summer in 2017 and the last major bull run demonstrate the effects of diminished liquidity on crypto markets, which can potentially fuel bullish sentiments.