JPMorgan: Flows into Grayscale “Too Big,” GBTC is the Guide to Bitcoin’s Next Move

For now, GBTC is oversubscribed, and the premium has climbed to nearly 36%, last seen in February this year.

In its last Flows and Liquidity report for the year, JPMorgan Chase noted, “alternative currencies” like Bitcoin and gold have been the main beneficiaries of the pandemic.

Although compared to a $13.1 trillion increase in the value of total bonds and $11 trillion in equities, Bitcoin’s gains have been a paltry $0.3 trillion; it has been enough to push the price of the digital asset past the all-time high.

“There is little doubt that momentum traders, such as CTAs and quantitative crypto funds, amplified this week’s surge,” the strategists led by Nikolaos Panigirtzoglou wrote in a note Friday.

This made the bank strategist question, “how much of vulnerability do these momentum traders pose for bitcoin at the moment.”

In the short-term, the bank said it is “difficult not to characterize bitcoin as overbought at the moment.” Looking back, the last time momentum traders were so long bitcoin was in June 2019, it said.

The strategist went on to say that the odds of a correction would increase if the flows into the digital asset slow down significantly.

They noted that inflows into the largest digital asset fund, Grayscale Bitcoin Trust, are currently running at about $1 billion per month. GBTC’s assets under management have climbed above a record $13 billion this year, up from $2 billion at the start of December last year.

The flows into GBTC “are too big to allow any position unwinding by momentum traders to create sustained negative price dynamics,” said the strategists adding a major slowdown in those flows would increase the risk of a correction akin to the one in the second half of 2019.

For now, GBTC remains oversubscribed with a queue to get in. With investing in it taking weeks now, people are unable to get into GBTC right away.

This heightened demand has the premium on GBTC surging to nearly 36%, last seen in February this year.

Furthermore, looking at CME bitcoin futures, the report notes the open interest on them has increased by an astonishing 45% since last Friday to reach a record high of $1.4 billion.

As such, “it is difficult to not become concerned about a buildup of speculative long futures positions in bitcoin,” noted JPMorgan only to add “any previous attempts to call for mean reversion in these two indicators proved futile.”

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