InvestorCrypto.net - JPMorgan has issued a warning about the risk of a decline in the crypto market, citing weak crypto venture capital inflows.
Analysts at the global investment bank also remain cautious about the US Securities and Exchange Commission (SEC) giving the green light to Ethereum spot exchange-traded funds (ETFs) in May.
Crypto Market Decline Risk Warning
Global investment banking giant JPMorgan released a report on Thursday, raising concerns about the cryptocurrency market.
Noting that various proxies for crypto venture capital (VC) inflows have appeared "relatively subdued" year-to-date (YTD) compared to previous years, JPMorgan analysts, including Nikolaos Panigirtzoglou, Managing Director and Global Market Strategist at the bank, explained:
"We had previously argued that the recovery of crypto VC inflows is a necessary condition for sustained recovery in the cryptocurrency market, so in our view, weak YTD VC inflows pose downside risks."
The analysts detailed that while the recovery in venture capital funding is slow, crypto hedge funds have emerged as a more dynamic force this year.
They stated that their managed assets have experienced significant growth over the past six months, reaching around $20 billion.
In March, JPMorgan analysts said that bitcoin still appeared overbought despite a recent correction. Panigirtzoglou also stated that “it is unrealistic to expect bitcoin to equal gold in an investor’s portfolio in notional terms.”
Furthermore, JPMorgan analysts continue to dampen enthusiasm for the approval of Ethereum spot ETFs in May.
Their latest report reaffirmed their skeptical views, placing the likelihood of approval at no more than 50%.
They clarified, “Following the SEC investigation of the Ethereum Foundation, optimism for the approval of Ethereum spot ETF on May 23 also seems to have faded in the market price, as seen from the discount to NAV [net asset value] for Grayscale Ethereum Trust, which widened from 8% to 22% over the past month.”
There are also reports that the SEC may attempt to classify ether as a security. SEC Chairman Gary Gensler has so far refrained from stating a classification for ETH.
Recently, 48 U.S. lawmakers sent a letter to him urging the SEC chairman to clarify whether ETH is a security or a commodity.
However, JPMorgan analysts have a long-term optimistic view, believing that the SEC will eventually give the green light to ether ETFs.
They liken it to Grayscale Investments' efforts to convert the Bitcoin Investment Trust (GBTC) into a spot ETF, anticipating a similar scenario with potential litigation paving the way for SEC approval of spot ether ETFs.
In conclusion, JPMorgan's warning about the risk of a decline in the crypto market due to weak VC inflows, combined with their cautious stance on Ethereum spot ETF approvals, underscores the volatility and uncertainty surrounding the cryptocurrency landscape.
While regulatory challenges and market fluctuations persist, their long-term optimism suggests a belief in the resilience and potential growth opportunities within the cryptocurrency sector. As stakeholders navigate these complexities, staying informed, proactive, and strategic will be key to navigating the evolving crypto market environment effectively.
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