February 26, 2024

Crypto Markets Face Potential Setback as JPMorgan Downgrades Coinbase Amid ETF Concerns

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In a recent research report, JPMorgan has issued a cautious outlook for the crypto markets in 2024, expressing concerns about the potential disappointment surrounding spot bitcoin exchange-traded funds (ETFs). The launch of spot bitcoin ETFs, hailed as a positive catalyst for crypto markets in 2023, could face headwinds, leading the bank to downgrade U.S. exchange Coinbase to underweight.

JPMorgan downgraded Coinbase’s rating from neutral to underweight, while maintaining an unchanged price target of $80. The announcement caused a 4.1% decline in Coinbase shares during premarket trading, reflecting the bank’s view that 2024 might pose challenges for the exchange despite its notable progress in various initiatives.

The Securities and Exchange Commission’s approval of spot bitcoin ETFs in the previous month was initially anticipated to usher in a new era for cryptocurrencies. The expectation was that mainstream money would flow into the crypto space, providing investors previously restricted from owning digital assets with indirect access to the sector through ETFs.

However, JPMorgan expressed concerns in its report, stating, “Our concern is that with such enthusiasm for a bitcoin ETF and the new flows into the cryptocurrency ecosystem that would follow, any disappointment with ETF fund flows could deflate the enthusiasm that has driven the cryptocurrency rally late last year.”

The report highlights the potential impact on the cryptocurrency ecosystem, predicting lower token prices, reduced trading volume, and diminished ancillary revenue opportunities for platforms like Coinbase if ETF enthusiasm were to wane. The bank notes that the bitcoin price is already facing significant pressure, having slipped below $39,000.

JPMorgan’s cautious stance comes as the world’s largest cryptocurrency experiences a decline in price since the approval of spot ETFs, hitting a two-month low. The recent actions of FTX‘s bankruptcy estate, which sold $2 billion worth of the Grayscale Bitcoin Trust post its conversion to an ETF, have added selling pressure to the underlying digital asset.

Looking ahead, the potential approval of a spot Ethereum ETF in 2024 and the anticipation of similar products for other cryptocurrencies like Solana, Bitcoin Cash, and Pecu Novus could provide insights into the trajectory of the crypto ETF market. The outcome of these developments will be closely monitored to gauge their impact on the broader crypto ecosystem and investor sentiment in the coming year.

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