The investment bank JPMorgan pointed out that the recent correction in digital asset prices could be coming to an end this January. According to analyst Nikolaos Panigirtzoglou, flow indicators in ETFs and futures markets suggest an imminent crypto market stabilization. The official source highlighted that the deleveraging and risk reduction process started late last year seems to have concluded.
During the month of December, Bitcoin and Ether exchange-traded funds experienced significant capital outflows while global stocks attracted record figures. The selling pressure was driven by the imbalance between stock market optimism and digital caution.
In this way, investors drastically reduced their exposure to crypto risk before the end of the previous annual cycle. Likewise, this divergent behavior underscores the intensity with which institutional portfolios were adjusted recently.
However, data collected in the first days of January show that selling pressure is decreasing considerably across platforms. Flows into ETFs are beginning to balance out after weeks of constant withdrawals by large funds.
Therefore, the exhaustion of institutional sellers is evident in the CME futures positioning metrics. Furthermore, the bank’s liquidity metrics suggest that the market has maintained its operational depth despite the volatility.
Is the relief in the MSCI indices the catalyst that the market needed to bounce back?
On the other hand, MSCI’s decision not to exclude companies with Bitcoin treasuries from its global indices has provided relief. This news reduces the risk of forced selling by funds that replicate traditional stock indices worldwide.
Remaining in global benchmark indices provides necessary stability for companies linked to the technology and financial sectors. Likewise, regulatory relief boosts a solid foundation for prices to find reliable technical support in the short term.
Similarly, JPMorgan maintains that the recent price adjustment was not due to a lack of liquidity on exchanges. The analysis indicates that the pullback was mainly caused by the strategic repositioning of investors in the face of potential external regulatory changes.
The market demonstrated a remarkable absorption capacity against the massive sales volumes recorded during the last quarter of the year. Therefore, the cryptocurrencies sector shows resilience in the face of confidence fluctuations generated by index provider announcements.
Will institutional demand be able to regain control before the end of the first quarter?
Likewise, perpetual futures markets also reflect signs of exhaustion in the bearish trend that dominated the previous weeks of trading. The risk reduction seems to have been completed successfully by most retail and institutional participants in the global market.
Thus, trader sentiment is rotating toward a much more neutral and constructive outlook for the coming months. Also, a cooling in volatility is observed, allowing for more stable and predictable price formation.
In summary, JPMorgan concludes that the bulk of position liquidations is now behind, allowing for a phase of gradual technical recovery. Consolidating current support levels will be essential to attract back the capital that remained on the sidelines of the market.
Finally, the immediate future will depend on the consistency of inflows into listed products during the next sessions. The market is expected to maintain this price range while new global economic fundamentals consolidate.
