Cryptocurrency: Cryptonauts Say JPMorgan is 75% Overvalued, Stablecoins are Cooked and Done
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Thu May 26 22:12:09 PDT 2022
JPMorgan Says Bitcoin Is 25% 'Undervalued', Terra FUD Overdone
The collapse of the Terra USD and the Luna token, within a year of the
collapse of Iron Finance and the TITAN token, once again brought out
the obituaries for crypto broadly, and raised the FUD over the
stabilisation mechanisms of stablecoins (most specifically
'algorithmic' style). As a reminder, we can classify stablecoins into
three broad categories: fiat-backed, crypto-backed, and algorithmic.
It has also soured sentiment among crypto investors...
As JPMorgan's Nikolaos Panigirtzoglou notes in his latest report, most
flow and positioning metrics also turned very negative.
The chart below shows the 4-week rolling flow into bitcoin and
ethereum publicly traded funds. These funds capture a significant
component of the institutional impulse as many institutional investors
are either not willing or not permitted to invest directly in crypto
assets via digital wallets.
In the fund space bitcoin funds including ETFs saw the largest outflow
since May 2021.
The crypto fund flow impulse has been normalizing over the past year
after peaking at the beginning of 2021 and has been mostly negative
In the futures space, JPM's position proxy for CME bitcoin futures is
approaching oversold territory. The equivalent indicator for ethereum
has also declined to below neutral...
These flow and positioning metrics, Panigirtzoglou suggests, provides
a good entry point for long term investors.
The JPM strategist also notes that, thus far, however, there seems to
have been relatively limited spillovers to other stablecoins and the
Total Value Locked in DeFi projects beyond Terra appears to have been
Panigirtzoglou concludes by noting that the past month’s crypto market
correction looks more like capitulation relative to last
January/February and going forward JPM sees upside for bitcoin and
crypto markets more generally.
Our previous projection that the bitcoin-to-gold vol ratio will
settle to around 4x this year stills holds...
Our fair value for bitcoin based on a volatility-ratio of
bitcoin-to-gold of around 4x would be $38k significantly above its
Additionally, JPMorgan's bullish stance is reinforced by Glassnode's
MVRZ Z-Score, which assesses when Bitcoin is undervalued/overvalued
based on its "fair value", and is nearing the green zone that had
preceded the crypto's massive rebound rallies, as shown in the chart
JPMorgan reiterates four reasons behind the emergence of crypto as an
alternate institutional asset class.
First, the pandemic by inducing unconventional monetary policies
and by boosting money supply created additional demand for an
“alternative” currency. After the Lehman crisis, the role of an
“alternative” currency was played by gold. After the virus crisis,
this role was played by both bitcoin and gold.
Second, the fact that bitcoin and cryptocurrencies survived the
long winter of 2018/2019 and their market value did not go down to
zero as many crypto critics were predicting at the time, increased
confidence among institutional investors that there is enough residual
demand ascribing value to cryptocurrencies.
Third, the corporate sponsorship of bitcoin that started emerging
in the summer of 2020 with Microstrategy, Square, PayPal, Tesla
further boosted institutional investors’ confidence into bitcoin and
Fourth, the pandemic accelerated the shift towards digitization
and cryptocurrencies are expanding in tandem with the adoption of
Distributed Ledger Technology (DLT) as they represent the fuel for
powering DLT networks.
Going forward Panigirtzoglou believes that the trajectory for VC
funding would be crucial in helping the crypto market to avoid the
long winter of 2018/2019. If VC funding dries up from here as a result
of the loss of confidence from the collapse of Terra’s ecosystem, then
a return to the long winter of 2018/2019 would look more likely for
Thus far there is little evidence of VC funding drying up post Terra’s collapse.
Of the $25bn VC funding YTD, almost $4bn came after Terra.
Panigirtzoglou ends on a positive note, saying that "our best guess is
the VC funding will continue and a long winter similar to 2018/2019
would be averted."
On the same day, major venture capitalist Andreessen Horowitz
announced the closing of its fourth cryptocurrency fund at $4.5
billion. Also on Wednesday, crypto-focused venture firm NGC Ventures
launched its third blockchain fund with $100 million raised from
investors that included Babel Finance, Huobi Ventures and Nexo
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