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JPMorgan Doubts Crypto Inflows Will Remain as Robust

America’s largest bank says the state of the cryptocurrency market may not be sustainable.

This year has seen crypto net inflows of $12 billion thus far — a figure that could jump to $26 billion by year’s end assuming flows continue apace — a trend driven by demand for spot bitcoin exchange-traded funds (ETFs), JPMorgan Chase analyst Nikolaos Panigirtzoglou wrote in a note cited in a Sunday (June 16) report by Seeking Alpha.

While this number is impressive, Panigirtzoglou wrote it might not be entirely made up of new funds coming into the crypto space.

“We believe there has likely been a significant rotation away from digital wallets on exchanges to the new spot bitcoin ETFs,” he explained.

This movement is noticeable, he noted, as bitcoin reserves on exchanges have dropped by 220,000 BTC, or $13 billion, since the Securities and Exchange Commission (SEC) approved bitcoins ETFs in January. 

“This implies that the majority of the $16 billion inflows into spot bitcoin ETFs since launch likely reflects a rotation from existing digital wallets on exchanges.”

Panigirtzoglou attributed the rotation to “the cost effectiveness, deeper liquidity, regulatory protection and convenience of the ETF wrapper that has become market participants’ preferred choice of instrument for bitcoin exposure for both existing and new crypto investors.”

All told, the analyst has doubts that crypto inflows will continue at the same pace for the remainder of  2024, considering how high the price of bitcoin is relative to the cost to produce one or when compared to gold.

This isn’t the first time this year that the banking giant has expressed its doubts about bitcoin ETFs, writing soon after the SEC’s ETF approval that the funds would draw money for existing crypto products but not attract new capital.

“We are skeptical of the optimism shared by many market participants at the moment that a lot of fresh capital will enter the crypto space as a result of the spot bitcoin ETF approval,” the banks’ analysts wrote in January. 

Last month saw reports that venture capital investment in crypto companies had begun increasing after cooling for two years, climbing to $2.4 billion in the first quarter of 2024.

“The crypto industry is still in its early stages, and there is a lot of room for growth and innovation,” PitchBook senior analyst Robert Le wrote in a report quoted by Reuters.

“Barring any major market downturns, we expect the volume and pace of investments to continue increasing throughout the year,” he added.