JPMorgan says Institutional Investors Have Shown A ‘Strong Preference’ for Ethereum Over Bitcoin Since August
The banking giant deduced this based on CME data that shows Bitcoin's future in backwardation, which it sees as “weak demand” while in actuality has been a precursor of bullish price action.
This deduction is based on their analysis of Chicago Mercantile Exchange (CME) futures activity depicting institutional investors’ behavior.
In its “Flows and Liquidity” report, JPMorgan notes that this month’s correction has sent bitcoin futures shifting into backwardation after spending August in contango, which it said is a “setback for bitcoin and a reflection of weak demand by institutional investors.”
In a normal environment, Bitcoin futures trade at a positive spread over spot, i.e., in contango, it added.
The typically high futures to spot spread, according to them, is likely a function of the high “risk-free” rate or opportunity cost implicit in crypto markets. And because lending USD in crypto attracts annual interest rates of 5-10%, this high “risk-free” rate is a common component in the futures vs. spot arbitrage trade across both Bitcoin and Ether futures.
This is “likely a reflection of how “crypto-rich” and “cash-poor” crypto markets still are,” added the report.
According to JPMorgan analysts, when demand is particularly weak and price expectations turn bearish, the futures curve shifts into backwardation, and from this, they deduced that the backwardation in September is a negative signal which further points to weak demand for the cryptocurrency by institutional investors.
However, as we previously reported, Bitcoin futures being in backwardation, and funding rates on perpetual contracts going negative across the board, is favorable for the prices.
Back in June, after the deep pullback, Bitcoin futures went into backwardation, and JPMorgan called that weak demand as well and a negative signal; trader CL noted that the “longer dated the backward futures are, the more bullish it is” because “it means that people are literally not even short term bearish, they're long term bearish…. on the best performing asset of the decade, which is usually…. a giga bottom.”
Meanwhile, JPMorgan analysts go on to say that because Ethereum futures are in contango, “this points to much healthier demand for ethereum vs. bitcoin by institutional investors.”