The crypto rally: analysis according to JPMorgan

In February, individual investors’ interest in crypto has seen a similar increase to that observed for stocks, potentially contributing to the current rally, according to JPMorgan’s analysis. 

Experts have identified three main catalysts for this growth, but have pointed out that two of them are already widely reflected in the market. Let’s see all the details below. 

JPMorgan identifies retail momentum as the main driver of the recent crypto rally

As anticipated, JPMorgan analysts suggest that the current increase in crypto prices is mainly driven by individual traders making impulsive choices, rather than by institutional investor sentiment or market fundamentals.

In their note on Thursday, analysts led by Nikolaos Panigirtzoglou compared this dynamic to that of stocks.

Specifically stating that the retail sales impulse seems to have bounced back in February, likely responsible for the strong crypto rally this month.

The GMCI 30 index, reflecting the performance of the top 30 cryptocurrencies, has recorded an increase of over 13% since the beginning of the year.

Analysts have indicated that the retail impulse is evident through the analysis of cumulative flows of Bitcoin on-chain, the distinction between small and large wallets, and the adjustment for inflows into new exchange-traded funds of Bitcoin spot.

This adjustment is necessary because retail investors’ holdings in Bitcoin moving towards the new spot Bitcoin ETFs are technically held in larger institutional portfolios, even though the end investor is retail, analysts explained.

Analysts have also reported a growing interest in cryptocurrencies in retail through the increasing popularity of artificial intelligence and meme tokens. 

They noticed a rebound of such tokens in the overall market capitalization of cryptocurrencies in February.

Analysts identify three key catalysts behind the retail momentum

Retail interest in cryptocurrencies also grew at the end of the previous year, reflecting the momentum observed in stocks during the fourth quarter of 2023, according to analysts.

This increase is supported by quarterly reports from traditional brokerage platforms such as Block, PayPal, and Robinhood, which offer cryptocurrency trading and custody services to retail customers. 

During the fourth quarter, these platforms have recorded an increase in trading activity and investor flow. 

Cryptocurrency exchanges, such as Coinbase, have also noticed an increase in trading activity among retail investors during that period, analysts added.

Analysts attribute the recent retail momentum to three main upcoming crypto catalysts.

That is the Bitcoin halving event, the imminent significant update of Ethereum called Dencun, and the prospects of approval of spot ETFs on Ethereum in the United States in May. 

However, experts emphasize that the first two catalysts are widely considered in the market, while the possibility of approval of Ethereum ETFs in May is estimated at 50%.

Some JPMorgan analysts raise doubts about Coinbase

Currently, the cryptocurrency market is facing an ambivalent situation, with various analysts expressing doubts about Coinbase.

Among the most significant critics is Kenneth Worthington from JP Morgan, who casts a significant shadow, raising questions about the actual extent of the benefits claimed by the platform.

The main point of disagreement for Worthington concerns the lack of clarity from Coinbase regarding the exact financial impact of Exchange Traded Funds (ETFs). 

Despite the exchange presenting its involvement as a victory, the analyst carefully examines both the positive and negative aspects, openly criticizing the lack of transparency. 

Worthington expresses the need for further details. In particular on the economic component of the ETF agreements, focusing on the custody services provided by Coinbase for eight out of ten Bitcoin ETFs.

This lack of transparency raises Worthington’s skepticism about the real earning potential of such ETFs and their ability to withstand potential losses in the spot market. 

Nevertheless, it should be noted that Coinbase exceeded Wall Street expectations in the fourth quarter report, leading to a significant increase in its shares and gaining the approval of some bullish analysts. 

Therefore, the jury is still undecided on this issue.