JPMorgan dismantles the bullish argument for bitcoin, calling the crypto rally overdone

The latest crypto rally is "rather overdone," JPMorgan wrote in a note this week.
The possible launch of bitcoin spot ETFs in the US is unlikely to bring in fresh capital.
Meanwhile, next year's bitcoin halving event is already priced in, the analysts said.

With high hopes that bitcoin can finally rocket towards a new high, long-term investors are hoarding the token at historic levels.

Yet, the factors driving crypto bullishness — such as impending approval of spot ETFs and the coin's upcoming halving — may end up having little impact on the token, JPMorgan analysts wrote on Wednesday.

In fact, crypto's recent rally is "rather overdone," they said. In the past month, bitcoin has surged 32% as the SEC appears closer to approving the first bitcoin spot ETF in the US. Investing giants such as BlackRock and Fidelity are leading the efforts to establish such funds.

But while crypto-enthusiasts have touted the ETFs as a way to acquaint Wall Street's more traditional investors with bitcoin, JPMorgan analysts are unconvinced that this would inject fresh capital into the space.

Instead, the spot ETFs would attract investment from existing bitcoin products, such as Grayscale's bitcoin trust, future ETFs, and bitcoin mining companies, which tend to amass the token.

"We envisage this shift as a relative value trade as several of the above bitcoin products trade at a premium or much reduced discount relative to the past," the note said.

As for new investors, spot ETFs existing in other countries have failed to attract impressive interest, JPMorgan noted. The biggest physically-backed bitcoin fund, the Purpose Bitcoin ETF, has been relatively flat since its launch in 2021.

Analysts also noted that SEC authorization for spot ETFs — which the agency first challenged in court — doesn't signal a complete regulatory reversal towards the crypto industry.

"While this year's Ripple vs SEC and Grayscale vs SEC court rulings represent legal defeats for the SEC, it is far from clear that the regulatory tightening of the crypto industry will lessen significantly going forward given how unregulated this industry is," the note said. "US crypto industry regulations are still pending and we do not believe US lawmakers would shift their stance because of the above two legal cases, especially with the memories from the FTX fraud still fresh."

Under Chairman Gary Gensler, the agency has taken a heavy-handed approach in supervising the sector, characterizing it as rife with "fraud" and "hucksters."

Whatever the outcome on Wall Street, crypto markets are also getting a boost from bitcoin's upcoming halving cycle in April. This predetermined event lowers the amount of tokens awarded to miners, putting pressure on future supply and inducing a further price rally.

While this has historically happened at each halving, JPMorgan says that the halving price is already priced in at bitcoin's current level.

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