JPMorgan Sounds Alarm on Crypto Markets, Flags Downside Risk

JPMorgan raises concerns over crypto markets, warns of downside risks

JPMorgan now signals crypto market risks from the bottom, mentioning a decreased amount of crypto venture capital. Meanwhile, analysts at the global investment bank are also skeptical if the SEC will approve the spot Ethereum exchange-traded funds (ETFs) in May.

Cryptomarket's Downside Risk Alert

Global investment banking behemoth JPMorgan unveiled a report on Thursday that warned about the interplay between the cryptocurrency markets and economic stability.

Pointing out that different proxies of crypto VC inflows seem less intense this year compared to the previous ones, JPMorgan's team, which included Nikolaos Panigirtzoglou, the managing director and a global market strategist of the bank,

"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."

As noted by the analysts, the crypto hedge funds are taking the place of start-up VC funds as the quicker alternative this year. The assets under management of their firm have witnessed a notable upsurge exceeding the last 6 months' figures of $20 Billion, the two chief strategists explained to the media.

By the end of March, JPMorgan's analysts reported that despite a correction in the price, bitcoin still looks overbought or overpriced to a certain degree. He furthermore noticed that "it is not realistic to expect that bitcoin will have the same significance that gold has in the investor's portfolio in notional amount."

Additionally, the JPMorgan experts continue to discourage high expectations of a spot ether ETF approval this may. In the recent report, they again expressed this way of thinking, and according to their logic, the odds of approval were limited to 50 at most. "Much like the case of the Ethereum Foundation with the SEC investigation, the exuberance of spot Ethereum ETFs approvals seems to be faltering as it is seen in the widening discount over NAV [net asset value] to the Grayscale Ethereum trust which moves from 8% to 22% within the past month," they warned.

Also, there are rumors that one of the purposes of the SEC is that it may try to regard ether as a security issue. For now, SEC Chairman Gary Gensler is not saying publicly whether ETH should be defined as a security or not. Just recently, the Senate sent a letter to the SEC chair who has been called upon to explain whether or not ETH is a security or a commodity.

However, JPMorgan analysts state that this is all short-term as they are positive that the spot ether ETFs will be permitted by the SEC at some point in the future. Other applications may evidence comparisons with Grayscale Investments bitcoin trust (GBTC) efforts to deal with its case issues and subsequent litigation which may pave the way to a permission spot ether paper by SEC.