A team of strategists for JPMorgan, headed by Nikolaos Panigirtzoglou, believes bitcoin (BTC) is seeing a weak demand from big players.
According to JPMorgan, bitcoin futures curve is in what the team calls backwardation, which means that the spot price as it sits is higher than the futures contracts. Futures contracts require the buyer to purchase assets at a specific price at a fixed date sometime down the line.
The strategists are concerned, because the last time the spot price was higher than futures contracts was in 2018 when the last bitcoin crash occurred. That crash saw cryptocurrencies fall nearly 80%, making it worse than even the dotcom bubble bursting at the turn of the millennium.
This ostensibly suggests a bear market could be incoming, as there is a lack of investment interest from institutional buyers. The findings by JPMorgan are based on a 21-day rolling average of BTC futures over spot prices. The team stated:
“This is an unusual development and a reflection of how weak bitcoin demand is at the moment from institutional investors that tend to use regulated CME futures contracts to gain exposure to bitcoin.”
The team went on to warn that this might be “a bearish signal carrying some echoes of the retail-investor-driven froth of December 2017.”
Another issue that the team expressed concern over was that bitcoin’s share of the global market dipped over the last few months from around 70% in January to nearly 42% today. Panigirtzoglou warned about the declining bitcoin market share in May, which was followed by a significant dive in valuation.
Regulations causing headaches for crypto investors
One of the likely reasons for the slip in overall performance from bitcoin is the increased regulations that governments are placing on cryptocurrencies. It seems almost daily that a new country is announcing plans to expand rules and regulations surrounding the use and trading of cryptocurrencies.
Last week, the Chairman of the United States Securities and Exchange Commission Gary Gensler called for greater protection for investors. Gensler, who formerly served as Obama’s head of the Commodity Futures Trading Commission, said that cryptocurrencies have “raised new issues of investor protection that we still need to attend to.”
China has also begun cracking down on the issues it has with cryptocurrency, specifically the mining of bitcoin. The nation is trying to take steps towards becoming a greener country and bitcoin mining is not an industry that will help them achieve that goal.
Because of this, new regulations have begun to ban mining crypto. This has forced many to flee elsewhere, like the U.S. and Kazakhstan, to continue mining. However, it apparently is only a matter of time, before the same issues pop up in miner’s new homes and more regulations are proposed.