Bitcoin, Ethereum Face Downside Risk As Institutional Demand Fades, JPMorgan Says

JPMorgan analysts have raised concerns over declining institutional demand for Bitcoin BTC/USD and Ethereum ETH/USD futures, suggesting this trend could contribute to broader weakness in the cryptocurrency market.

What Happened: The analysts observed that futures contracts for both cryptocurrencies on the Chicago Mercantile Exchange are approaching a condition known as backwardation, where futures prices drop below spot prices, according to The Block.

This pattern was previously seen during downturns in June and July last year.

The total market capitalization of cryptocurrencies has decreased by about 15 percent since hitting a peak of $3.7 trillion in December, now hovering around $3.1 trillion.

According to JPMorgan, when demand from institutional investors is strong, Bitcoin and Ethereum futures generally trade at a premium to spot prices, a condition referred to as contango.

The current shift away from this trend suggests that institutional investors may be stepping back.

Analysts, led by Nikolaos Panigirtzoglou, identified two main reasons for the weakening demand.

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First, some institutional investors appear to be securing profits amid uncertainty, as there are no imminent developments in crypto regulations or policies.

With no major government actions expected before mid-year, these investors may be hesitant to increase their exposure.

Second, momentum-based funds, such as commodity trading advisors, have also been reducing their positions in Bitcoin and Ethereum, contributing to declining demand.

Ethereum has already shown negative price signals, while Bitcoin's indicators are also trending downward.

What’s Next: While long-term optimism remains among some investors, JPMorgan analysts suggest that further declines could occur if institutional interest does not recover.

Observers are now closely watching CME futures trends and broader macroeconomic signals for signs of market direction.

Without a clear catalyst to reignite demand, the cryptocurrency market may face additional pressure in the short term, potentially leading to further declines in Bitcoin and Ethereum prices.

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