JP Morgan thinks that the crypto market bottom could be in, citing limited contagion effects from Terra’s implosion and renewed confidence in the market thanks to Ethereum’s upcoming move to Proof-of-Stake.
Key Takeaways
- JP Morgan analysts have said that the cryptocurrency market may have "found a floor."
- The analysts cited limited contagion effects from Terra's collapse and growing interest in Ethereum's "Merge" event as factors behind the recent market bounce.
- JP Morgan added that market sentiment could improve if Ethereum's upgrade goes as planned.
JP Morgan cited Ethereum’s pending Proof-of-Stake upgrade as a key driver behind the recent market recovery. Ethereum is up around 90% from its June low.
JP Morgan Calls Crypto Bottom
According to JP Morgan, the worst of the pain in the crypto market may be over.
In a Monday note to clients, the investment banking giant’s analyst Kenneth Worthington said that the market may have “found a floor.” The note cited the decline in trading volumes and the $40 billion Terra collapse but noted that the spillover effects from the blockchain’s now-infamous depeg event had been relatively limited. An excerpt read:
“It appears that the crypto markets have found a floor despite trading volumes still being depressed. What has helped, we think, has been more limited new contagion from the collapse of Terra/Luna.”
The once-legendary crypto hedge fund Three Arrows Capital, venture titan Hashed, and a slew of major crypto lenders, including Celsius and Voyager Digital, were all hit hard after Terra’s LUNA token crashed to zero in May. Three Arrows defaulted on a series of uncollateralized loans after Terra imploded, prompting a series of bankruptcies.
Bitcoin, Ethereum and the rest of the digital assets market plummeted after Terra’s fall, sending the global cryptocurrency market capitalization below $1 trillion for the first time since January 2021. However, after hitting local lows in late June, many assets have since bounced as confidence returns to the market.
Ethereum has put in a particularly strong performance as anticipation builds for its “Merge” to Proof-of-Stake. According to CoinGecko data, ETH dropped below $900 on June 18 and currently trades at $1,700, up around 90%. Other Ethereum-adjacent projects like Optimism and Lido have also soared as hype for the Merge intensifies.
JP Morgan said the Merge was the key factor behind the market bounce. The note said:
“We think the real driver has been the Ethereum merge and positive data following the launch of the Sapolia [sic.] testnet in early July and Ropsten testnet in June, indicating the Merge is viable in 2022.”
Ethereum’s final Merge testnet on Goerli is expected to go live tomorrow, while the main event is tentatively scheduled for mid-September. The note said that a successful launch should improve sentiment in the crypto market.
In the lead-up to the Merge, Justin Sun and others have hatched plans to fork the Ethereum blockchain to preserve a Proof-of-Work network, defying widespread support for the Proof-of-Stake upgrade within the Ethereum community. While several exchanges have launched tokens for a potential Proof-of-Work fork, market demand is lacking so far.