JPMorgan stays bearish bitcoin, says big investors just aren't buying the dip

Published Thu, Jun 24 202110:49 AM EDTUpdated Thu, Jun 24 20212:22 PM EDT

JPMorgan is maintaining its bearish outlook on bitcoin despite the rebound in its price after its big dip earlier in the week. Institutional investors — who typically get exposure to bitcoin through regulated investment vehicles like CME bitcoin futures or the Grayscale Bitcoin Trust (GBTC) — are still showing little appetite to buy the dip, JPMorgan analyst Nikolaos Panigirtzoglou said in an note Wednesday. Panigirtzoglou cited the deepening discount to net asset value on GBTC shares and the upcoming unlocking schedule, as well as open interest in CME bitcoin and ether futures contracts. But mostly, he said, bitcoin's high volatility and boom-and-bust dynamics still present the biggest challenge to institutional investors. "Despite this week's correction we are reluctant to abandon our negative outlook for bitcoin and crypto markets more generally," he said. "We rather view the past week's correction in crypto markets as the continuation of the weak flow and price dynamics that had emerged from last month already. Bitcoin funds continue to bleed, even inflows into physical gold ETFs stopped." Bitcoin traded at about $34,000 as of Thursday morning, according to CoinMetrics. That's down from a high above $65,000 reached in April. Despite the decline, traders believed it was positive that the cryptocurrency rallied after falling below $30,000 earlier this week. But JPMorgan is not seeing the support from institutions to support the bounce. Panigirtzoglou's analysis of investor flows in bitcoin is being widely followed on Wall Street. Some traders believe his report indicating big investors dumping bitcoin had a hand in May's aggressive pullback. The GBTC discount has shrunk to 12.16% as of Thursday. Historically the fund trades at a premium but flipped in February of this year. Additionally, 16,000 bitcoins are scheduled to be released in July, according to Bybt, as GBTC shares exit their six-month lockup. With the current bearish sentiment, investors are likely to sell at least some of their GBTC shares, Panigirtzoglou, and that could put downward pressure on the fund as well as bitcoin markets more broadly. JPMorgan position proxies saw a modest increase for bitcoin futures and a small decline for ether futures since May 19, when bitcoin's price crashed from its last high. Earlier this week, the futures-to-spot spread took a sharp positive turn, after the bitcoin futures curve went into backwardation two weeks ago. Backwardation happens when the spot price of bitcoin was higher than that of the futures contracts. It's an unusual development and typically indicates weak bitcoin demand and price expectations by institutional investors. However, Panigirtzoglou said, the 21-day rolling average is still in negative territory and JPMorgan is looking for that to turn positive before it changes its bearish outlook. JPMorgan also previously noted that bitcoin needs to regain its dominance in the total cryptocurrency market. Bitcoin's share had dropped in April and May from 60% to 40%. It rebounded back up to 47% this week, but Panigirtzoglou said it needs to rise above 50% before he can say the bear market is behind us.

Luc MacGregor | Bloomberg | Getty Images

JPMorgan is maintaining its bearish outlook on bitcoin despite the rebound in its price after its big dip earlier in the week.