JPMorgan Warns of Downward Pressure on Bitcoin Prices
Global investment bank JPMorgan has issued a warning stating that the approval of spot bitcoin exchange-traded funds (ETFs) by the U.S. Securities and Exchange Commission (SEC) could have a significant impact on bitcoin prices. According to analysts at the bank, the conversion of Grayscale Investments' bitcoin trust (GBTC) into a spot bitcoin ETF could result in billions of dollars exiting the crypto market.
Predicting the Market Impact of Spot Bitcoin ETFs
In a recent Linkedin post, JPMorgan analyst Nikolaos Panigirtzoglou shared his predictions regarding the potential effects of the approval of spot bitcoin ETFs by the SEC on the price of bitcoin. While expressing confidence in the imminent approval of these ETFs, Panigirtzoglou raised concerns about the potential capital outflow from the Grayscale Bitcoin Trust (GBTC) as it transitions into a bitcoin ETF.
According to Panigirtzoglou, many speculative investors bought GBTC shares in the secondary market at significant discounts to NAV, anticipating its conversion to an ETF. These investors are expected to take profits once GBTC is converted and the discount to NAV is eliminated. The JPMorgan analyst estimates that around $2.7 billion could leave GBTC, which would have a substantial downward impact on bitcoin prices.
Impact on the Bitcoin Market
Panigirtzoglou suggests that if the entire $2.7 billion exits the bitcoin space, it would exert severe downward pressure on bitcoin prices. However, if most of this amount shifts into other bitcoin instruments, such as newly created spot bitcoin ETFs after SEC approval, the negative market impact would be less significant. Nevertheless, JPMorgan believes that the balance of risks for bitcoin prices is skewed to the downside, as a portion of the $2.7 billion is likely to completely exit the bitcoin market.
The analyst also points out that even more money could leave GBTC if its fee, currently at 200 basis points, is not significantly reduced post-ETF conversion. JPMorgan estimates that the equilibrium fee should be around 50-80 basis points.
Shift Towards Regulated Crypto Entities
Panigirtzoglou also discusses the impact of the recent Binance settlement with U.S. regulatory authorities on the crypto industry. According to him, this settlement reinforces the ongoing shift towards regulated crypto entities and instruments, which has been the objective of U.S. authorities in the aftermath of the FTX collapse.
The analyst believes that this shift towards regulated crypto entities and instruments will have a positive effect on the crypto ecosystem, as increased regulation will attract the interest of traditional market participants and investors. Panigirtzoglou cites the participation of major traditional asset managers like Blackrock and Fidelity in the forthcoming approval of physical or spot bitcoin ETFs by the SEC as evidence of this trend.
In conclusion, JPMorgan warns that the approval of spot bitcoin ETFs could lead to a significant impact on bitcoin prices. The bank predicts that billions of dollars could exit the crypto market if Grayscale Investments converts its bitcoin trust into a spot bitcoin ETF. Additionally, JPMorgan highlights the shift towards regulated crypto entities as a positive development for the crypto industry, attracting the interest of traditional market participants and investors.
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By: Kevin Helms
Title: JPMorgan: Approval of Bitcoin ETFs Could Impact Bitcoin Prices
Sourced From: news.bitcoin.com/jpmorgan-spot-bitcoin-etfs-could-put-severe-downward-pressure-on-bitcoin-prices/
Published Date: Sun, 26 Nov 2023 02:30:10 +0000
