JPMorgan has warned of a downside risk in crypto markets, citing subdued crypto venture capital flows. The global investment bank’s analysts also remain cautious about the U.S. Securities and Exchange Commission (SEC) greenlighting spot ethereum exchange-traded funds (ETFs) in May.
Crypto Market’s Downside Risk Warning
Global investment banking giant JPMorgan published a report on Thursday, raising concerns about cryptocurrency markets.
Noting that various proxies for crypto venture capital (VC) flows “look rather subdued” year-to-date (YTD) relative to previous years, JPMorgan’s analysts, including Nikolaos Panigirtzoglou, a managing director and global market strategist at the bank, explained:
We had previously argued that a recovery in crypto VC flows is a necessary condition for a sustained recovery in crypto markets, so in our minds, the subdued VC flows YTD pose a downside risk.
The analysts detailed that despite a sluggish recovery in venture capital funding, crypto hedge funds have emerged as a more dynamic force this year. Their assets under management have seen a significant surge over the past six months, reaching an estimated $20 billion, they added.
In March, JPMorgan’s analysts said that bitcoin still looks overbought despite the recent correction. Panigirtzoglou also stated that it would be “unrealistic to expect bitcoin to match gold within investors’ portfolios in notional amounts.”
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Moreover, the JPMorgan analysts continue to dampen enthusiasm for a May approval of spot ethereum exchange-traded funds (ETFs). Their latest report reiterates their skeptical view, placing the odds of approval at no more than 50%. “Following the SEC investigation of the Ethereum Foundation, the optimism for spot ethereum ETF approval by May 23rd appears to be also fading in market pricing as seen by the discount to NAV [net asset value] for the Grayscale Ethereum trust, which widened from 8% to 22% over the past month,” they described.
There are also reports that the SEC may be attempting to classify ether as a security. SEC Chairman Gary Gensler has so far refrained from stating the classification of ETH. Recently, 48 U.S. lawmakers sent a letter to him urging the SEC chair to clarify whether ETH is a security or a commodity.
Nonetheless, the JPMorgan analysts hold a long-term optimistic outlook, confident that the SEC will eventually greenlight spot ether ETFs. They drew parallels with Grayscale Investments’ efforts to convert its Bitcoin Investment Trust (GBTC) into a spot ETF, anticipating a similar scenario with potential litigation paving the way for eventual SEC approval of spot ether ETFs.
Source: Bitcoin
