JPMorgan report: the real reasons for the crypto winter that no one is talking about

According to JPMorgan’s new annual report, the FTX bankruptcy and Terra collapse, though they accelerated the crypto market’s price decline, the real reasons behind the crypto winter and bearish sentiment are deeper. JPMorgan not only lists the main reasons, which lie at the macroeconomic level but also makes predictions.

 

Highlights from JPMorgan’s report

Analysts at U.S. investment bank JPMorgan suggested that Bitcoin could lose about 25% more of its value in 2023, after which it will hit bottom. 

Among the main reasons for the crypto winter, two main ones stand out:

• The U.S. Federal Reserve’s rate hikes and the balance sheet cuts the Federal Reserve has used since June, taking money out of financial markets in a desperate attempt to cool the economy and temper inflation.
• Bitcoin’s halving cycles also have a significant impact on price.

Let’s take a closer look at these two factors below.

Falling after stocks

Numerous analysts have stated that Bitcoin’s price dynamics correlate with the S&P 500 Index. Throughout 2022, the S&P 500 Index has been in a prolonged downtrend, as has Bitcoin. 

The Federal Reserve’s actions shocked not only cryptocurrencies but also the fintech sector. Meta (formerly Facebook) stock dropped 77% from September 2021 to November 2022, Microsoft shares fell 39% from November 2021 to November 2022, and Amazon shares plummeted 54% from November 2021 to November 2022. 

Over the past 12 months, Bitcoin’s price has fallen 75% from its peak, so crypto does not look like an anomaly compared to stocks. The entire global market has fallen almost in sync.

This reaction of the markets is understandable. For a long period of time (over a decade in particular), the Fed has been hosing down the markets with money and then abruptly cutting off the supply. All this caused risky sectors of the economy to become uninteresting to the masses of investors.  Such a strong outflow of money led to a crisis of everything — stocks, cryptocurrencies and real estate.

Halving cycles

Bitcoin’s limited emission and systematic reduction of the new block reward every four years play a significant role in its pricing. The last halving took place in 2020, and the current reward is 6.25 BTC. The next halving in 2024 should reduce the block award to 3.125 BTC. 

The halving pricing model explains the “high cyclicality” in the cryptocurrency market, Bitpay experts said. Interestingly, a historically sharp rise in the price of Bitcoin is almost always accompanied by the same extreme drop.

Conclusion

The current Bitcoin price drop can be seen as a prolonged correction after reaching another all-time high, a year and a half after another halving. 

In fact, the price was influenced by a combination of reasons, including events such as FTX bankruptcy, a negative news background regarding Terra and Luna, the tight monetary policy of the US Federal Reserve, consequences of Coronavirus restrictions, the Chinese regulator’s ban on mining and cryptocurrency circulation. 

All of these reasons reinforce the downward trend in the crypto market, but since the market is cyclical, a reversal is inevitable, and it is only a matter of time. According to the forecast, the bottom of this fall will be passed in 2023, and the next growth cycle can be expected from about 2024.