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JPMorgan, a prominent financial institution on Wall Street, maintains a cautious outlook on cryptocurrency markets in the short term due to several factors, including the fading retail impulse and the absence of positive catalysts.
According to the bank’s analysis, retail investors were significant contributors to the recent sell-off in both crypto and equity assets during April. Moreover, spot bitcoin exchange-traded funds (ETFs) experienced outflows, indicating a decline in retail interest. The bank identifies three main challenges persisting in the market: high positioning levels, elevated bitcoin prices compared to gold and production costs, and subdued crypto venture capital (VC) funding.
The recent profit-taking in cryptocurrency markets has been notably driven by retail investors, overshadowing the involvement of institutional investors. Bitcoin, for instance, witnessed a 16% decline in April, marking its largest monthly drop since June 2022.
In a notable development, U.S.-based spot bitcoin ETFs recorded their highest-ever net outflows on Wednesday, totaling $563.7 million across 11 ETFs. This significant withdrawal occurred despite these funds only commencing trading on January 11.
JPMorgan’s analysis suggests that institutional investors, particularly momentum traders like commodity trading advisors (CTAs), have been capitalizing on previous extensive positions in bitcoin and gold. However, the reduction in positions by other institutional investors outside of quantitative funds and CTAs appears to be more limited, as indicated by futures market data.
In summary, while retail investors have played a prominent role in the recent crypto market sell-off, institutional investors, particularly momentum traders, have also been active in adjusting their positions. JPMorgan’s cautious stance reflects the ongoing challenges and uncertainties prevailing in the cryptocurrency landscape.
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