The cryptocurrency market is currently facing a challenging environment, with Wall Street bank JPMorgan (JPM) reporting a lack of positive catalysts in the near term. According to their analysis, both Bitcoin (BTC) and Ether (ETH) futures are showing signs of weakness, reflecting waning institutional demand.
In a report released Wednesday, JPMorgan highlighted that the recent correction in crypto markets has pushed futures prices for Bitcoin and Ether into a state of backwardation. This phenomenon occurs when the spot price of an asset exceeds its futures price, indicating lower demand for those futures contracts.
“This is a negative development and indicative of demand weakness by those institutional investors that use regulated CME futures contracts to gain exposure to these two cryptocurrencies,” analysts led by Nikolaos Panigirtzoglou stated. They noted that in a healthy market, futures prices typically cost more than spot prices, leading to a condition known as contango. However, the current market dynamics suggest a shift towards backwardation, driven by declining demand and softened price expectations.
JPMorgan analysts have reasons to believe that the crypto market stands at risk of experiencing a downturn in the short term. They reported a drastic reduction in institutional interest in Bitcoin and Ethereum futures contracts. Recent data shows that it took just about two months for the total market capitalization of the crypto market to shed 15% of its value, dropping from a peak of $3.72 trillion on December 17 to the current $3.17 trillion.
With this decline, Bitcoin and Ethereum futures on the Chicago Mercantile Exchange (CME) are approaching a state of “backwardation.” For clarity, backwardation refers to a situation where futures prices fall below spot prices. According to Panigirtzoglou, a similar condition played out in the market in mid-2024, often marked by a lack of interest from institutional investors using regulated CME futures to gain exposure to these digital assets.
Possible factors influencing this shift include the suspicion among institutional investors that there are no immediate positive catalysts, prompting some to take profits. Furthermore, the analysts noted that significant crypto-related policy initiatives are not anticipated until much later in 2025, contributing to the prevailing uncertainty.
Additionally, momentum-driven funds, such as commodity trading advisors, have been scaling back their exposure to these assets. The analysts claim that both Bitcoin and Ethereum have been experiencing weakening momentum signals in recent months, with some of Ethereum’s metrics potentially entering negative territory.
As the market grapples with these challenges, investors and analysts alike will be closely monitoring upcoming developments to gauge the potential for recovery in the cryptocurrency space.
Shogun Lin
