America's largest bank says the state of the cryptocurrency market may not be sustainable.
This year there have been net crypto inflows of 12 billion dollars so far - a figure that could jump to $26 billion by the end of the year, assuming flows continue apace - a trend driven by demand for spot bitcoin exchange-traded funds (ETFs), JPMorgan Chase analyst Nikolaos Panigirtzoglou he wrote in a note cited in a Sunday (June 16) report from Seeking Alpha.
While this number is impressive, Panigirtzoglou wrote that it might not be made up entirely of new funds entering the crypto space.
โWe think there has probably been a significant rotation away from digital wallets on exchanges towards new spot bitcoin ETFs,โ he explained.
This move is notable, he noted, as bitcoin reserves on exchanges have fallen by 220,000 BTC, or $13. billion, from the National Stock Market Commission (SECOND) Approved bitcoin ETFs in January.
"This implies that the majority of the $16 billion inflows into spot bitcoin ETFs since their launch likely reflect a rotation from existing digital wallets onto exchanges."
Panigirtzoglou attributed the rotation to "the profitability, increased liquidity, regulatory protection and convenience of the ETF wrapper which has become market participants' preferred instrument for bitcoin exposure for new and existing crypto investors."
All told, the analyst is doubtful that cryptocurrency inflows will continue at the same pace for the rest of 2024, considering how high the price of bitcoin is relative to the cost of producing one or in comparison to gold.
This is not the first time this year that the banking giant has expressed doubts about bitcoin ETFs, writing shortly after the ETF's approval by the SEC that the funds would raise money for existing crypto products, but not attract new capital.
โWe are skeptical of the optimism shared by many market participants right now that a large amount of fresh capital will enter the crypto space as a result of the approval of the bitcoin spot ETF,โ the banks' analysts wrote in January.
Last month there were reports that venture capital investment in crypto companies had started to rise after cooling off for two years. rising to 2.4 billion dollars in the first quarter of 2024.
โThe crypto industry is still in its early stages and there is plenty of room for growth and innovation,โ PitchBook senior analyst Robert Le wrote in a report cited by Reuters.
"Barring a major market decline, we expect the volume and pace of investments to continue to increase throughout the year," he added.
