JPMorgan Warns of Potential Crypto Market Downturn in 2024, Downgrades Coinbase Amid Bitcoin ETF Concerns

The much-anticipated Bitcoin ETFs could disappoint in 2024, posing challenges for Coinbase and crypto market momentum.

In a recent research report, JPMorgan has raised concerns about the potential reversal of last year's positive catalyst for crypto markets, the launch of spot bitcoin exchange-traded funds (ETFs).

The bank's analysts, led by Kenneth Worthington, downgraded U.S. exchange Coinbase (COIN) to underweight and revised its rating from neutral, despite an unchanged price target of $80. In premarket trading, Coinbase shares fell 4.1% to $122.90, reflecting a more challenging outlook for 2024 after the stock's remarkable 390% gain in the previous year.

While acknowledging Coinbase's dominance in the U.S. crypto ecosystem and its global leadership in cryptocurrency trading and investing, JPMorgan expressed concerns about the potential disappointment among market participants regarding the catalyst provided by bitcoin ETFs. The recent approval of spot bitcoin ETFs by the Securities and Exchange Commission (SEC) was expected to usher in a new era for cryptocurrencies, attracting mainstream money into the space by allowing investors to access the sector without owning the underlying assets.

The report highlights JPMorgan's worry that the high anticipation for a bitcoin ETF and the resulting inflow of funds into the crypto ecosystem could lead to disillusionment if ETF fund flows fall short of expectations. This disappointment could deflate the enthusiasm that has driven the cryptocurrency rally, particularly in the second half of 2023 and since October.

JPMorgan notes that the current pressure on the bitcoin price, which has slipped below $40,000, could be exacerbated by diminishing enthusiasm for cryptocurrency ETFs. The potential consequences include lower token prices, reduced trading volume, and diminished ancillary revenue opportunities for firms like Coinbase.

The report also points out that if a spot ether (ETH) ETF is approved, Coinbase is expected to play similar custodial, surveillance, and trading roles. As the world's largest cryptocurrency experiences a price decline since the approval of spot ETFs, concerns are amplified by the $2 billion worth of the Grayscale Bitcoin Trust (GBTC) dumped by the now-defunct crypto exchange FTX's bankruptcy estate. This substantial selling pressure on the underlying digital asset adds further complexities to the evolving crypto market landscape.