Crypto Market Faces Near-Term Risks as Momentum Slows, JPMorgan Warns

The cryptocurrency market is facing near-term downside risks as momentum slows and demand weakens, JPMorgan has warned. After reaching a record high of $3.72 trillion in December 2024, the total crypto market cap has declined by 15% to $3.17 trillion, signaling a loss of investor confidence.

JPMorgan highlights the futures market as a key indicator of weakening demand. Both bitcoin and ethereum futures are approaching backwardation, a situation where futures prices fall below spot prices. This shift, which is unusual as futures typically trade at a premium (contango), reflects demand weakness among institutional investors using regulated futures contracts.

The bank attributes the weakening demand to two main factors. First, institutional investors may be taking profits amid a lack of short-term catalysts. JPMorgan notes that significant crypto initiatives from the new U.S. administration are more likely to materialize in the second half of the year, leaving markets vulnerable until then.

Second, momentum-driven funds, such as Commodity Trading Advisors (CTAs), are pulling back. Ethereum’s momentum signal has already turned negative, while bitcoin is experiencing momentum decay. Without fresh catalysts, crypto markets could face further downward pressure in the near term, JPMorgan warns.

Overall, the combination of weakening demand and shifting futures market dynamics poses significant risks for the crypto market in the short term.