Institutional Flows Keep Bitcoin From Correcting: JPM Analysts

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Analysts from the US multinational investment bank JPMorgan Chase & Co have doubled-down on their belief that institutional inflows towards bitcoin are crucial for the asset’s price. They warned that if their purchases decline, the cryptocurrency could head towards a violent correction.

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While most financial assets have suffered through this challenging year, bitcoin’s performance has contrasted substantially with a surge of more than 220% since the start of 2020.

The last quarter has turned out to be especially favorable for the asset as it more than doubled its value from early October and painted a new all-time high above $24,000.

In its latest report on BTC’s performance, JPMorgan analysts led by Nikolaos Panigirtzoglou explored the potential reasons behind the impressive surge. While they acknowledged some claims that the rally is unsustainable because it is led by speculative quant funds, the strategists said that institutional interest is perhaps the most probable reason behind it.

Thus, they doubled-down on a previous report highlighting the growing role of Grayscale. The company is the go-to organization for institutions who want to get BTC (or other cryptocurrencies) exposure without worrying about storing the funds and don’t mind paying a premium.

The leading digital asset manager started 2020 with assets under management (AUM) of about $2 billion. However, after consecutive record-breaking inflows in its products, the amount has grown to above $15 billion. Somewhat expectedly, the Grayscale Bitcoin Trust is responsible for the majority of the funds with over $13 billion.

Consequently, the strategists opined that these flows into the BTC Trust “are too big to allow any position unwinding by momentum traders to create sustained negative price dynamics.” However, they warned that in case of a major slowdown in those inflows could “boost the risk of a bitcoin correction akin to the one in the second half of 2019.”

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Apart from the growth of the Grayscale Bitcoin Trust, the JPM analysts highlighted the increasing number of corporations and institutions that have entered the BTC scene lately.

Companies such as the NASDAQ-listed MicroStrategy and Jack Dorsey’s Square purchased millions of dollars worth of bitcoin in a matter of months.

Insurance company MassMutual and hedge funds giants One River Asset Management and Ruffer Investment did the same. Wall Street behemoth Guggenheim filed a document with the SEC to buy up to $500 million, while its CIO said that the cryptocurrency should be worth $400,000.

The asset has also seen praise from prominent traditional investors such as Stan Druckenmiller, Bill Miller, and Paul Tudor Jones.

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