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JPMorgan doubts cryptocurrency inflows will remain robust
America’s largest bank says the state of the cryptocurrency market may not be sustainable.
This year we have seen net inflows of cryptocurrencies $12 billion so far – a figure that could rise to $26 billion by the end of the year assuming flows continue apace – a trend driven by demand for spot bitcoin exchange-traded funds (ETFs), JP Morgan Chase analyst Nikolaos Panigirtzoglou he wrote in a note cited in a Sunday (June 16) report from Seeking Alpha.
While this number is impressive, Panigirtzoglou wrote that it may not be entirely made up of new funds arriving in the cryptocurrency space.
“We believe there has likely been a significant rotation from digital wallets on exchanges to new Bitcoin spot ETFs,” he explained.
This movement is evident, he noted, as bitcoin reserves on exchanges have decreased by 220,000 BTC, or $13 billion, since Securities and Exchange Commission (SEC) Approved bitcoin ETFs in January.
“This implies that most of the $16 billion in inflows into spot bitcoin ETFs since launch likely reflects a rotation from existing digital wallets on exchanges.”
Panigirtzoglou attributed the rotation to “the cost-effectiveness, increased liquidity, regulatory protection and convenience of the ETF wrapper that has become the preferred tool for market participants for bitcoin exposure and for existing cryptocurrency investors than for the new ones.”
Overall, the analyst doubts cryptocurrency inflows will continue at the same pace for the rest of 2024, considering how high the price of bitcoin is relative to the cost to produce one or compared to gold.
This isn’t the first time this year that the banking giant has expressed its doubts about bitcoin ETFs, writing soon after the SEC’s approval of the ETF that the funds would attract money for existing crypto products but do not attract new capital.
“We are skeptical of the optimism shared by many market participants at the moment that a lot of new money will enter the cryptocurrency sector following the approval of the Bitcoin spot ETF,” the banks’ analysts wrote in January.
Last month it was reported that venture capital investments in crypto firms had started to increase after a two-year cooldown. rising to $2.4 billion in the first quarter of 2024.
“The cryptocurrency industry is still in its early stages and there is a lot of room for growth and innovation,” PitchBook senior analyst Robert Le wrote in a report cited by Reuters.
“Barring any major market downturns, we expect the volume and pace of investment to continue to increase throughout the year,” he added.
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