Institutional Traders Shun Crypto Despite Positive Sentiment

JPMorgan Chase’s e-Trading annual survey revealed that approximately 78% of institutional traders have no intention of getting involved in cryptocurrencies over the next five years. A mere 12% are considering trading in the space despite the current positive sentiment. For context, bitcoin (BTC-USD) experienced a dramatic 165% surge in 2023, largely due to speculative interest in newly-approved spot bitcoin exchange-traded funds. Following the approval, the high-profile token retraced a significant portion of its gains but found support at approximately $40K. Subsequently, it rebounded to $47.3K by Friday afternoon, establishing a trend of higher lows along the way.

Amidst concerns surrounding U.S. regional banks, triggered by New York Community Bancorp’s (NYCB) Q4 earnings shock, bitcoin rallied as investors turned to the token as a hedge against uncertainty during the regional banking turmoil in March. However, despite this positive sentiment, the volatility of cryptocurrencies seems to be deterring institutional traders from engaging in the space. In 2022, following the significant bull run in 2021, the crypto industry experienced several bankruptcies and encountered a broader risk-off sentiment across financial markets, leading to a severe bear market. Bitcoin (BTC-USD) and ether (ETH-USD) plummeted by 64.9% and 68.7%, respectively.

Nevertheless, JPMorgan’s survey of 4,010 global institutional traders showed a marginal increase in engagement with crypto, with 9% currently involved, up from 8% in 2023. This slight rise may be attributed to the heightened interest in the industry from traditional financial firms. BlackRock (BLK), Invesco (IVZ), Wisdomtree (WT), and Fidelity were among the financial behemoths that secured regulatory approval for their spot bitcoin ETFs.

Analysts like Kennan Mell have outlined various factors that could potentially fuel a continued rally in bitcoin’s price, including the upcoming halving event scheduled for April, potential interest-rate cuts by the Federal Reserve, the possibility of an ethereum (ETH-USD) spot ETF, and overall positive investor sentiment. Mell contended in late January that “bitcoin’s recovery from this sell-off is expected to be faster than previous sell-offs.”

However, participants in the J.P. Morgan survey displayed diminished optimism about blockchain technology in 2024 compared to the previous year. Blockchain and distributed ledger technology fell in ranked performance to 7% from 12% in 2023. Conversely, artificial intelligence and machine learning are anticipated to have the most significant impact on trading over the next three years, with 61% of respondents believing that these technologies would lead the pack, an increase from 53% last year.