2 Reasons Why JPMorgan Predicts Crypto Will Continue To Go Higher

Over the past seven months or so, the total cryptocurrency market cap has been cut by more than half. At one point in late June, crypto collectively lost nearly 65% ​​of its value since the New Year.

But thanks to some newfound momentum, prices have rebounded in recent weeks. The rise appears to have been significant enough for one of the world’s leading financial services firms, JPMorgan Chase (JPM -0.09%), believing that the asset class has bottomed out. In a statement this week, analysts from the company argued that, due to a few factors, the recent price rally may prove that the market has “found a floor.”

Stormy sea calm

The first topic JPMorgan highlighted was related to the systemic impact induced by the implosion of the Terra‘s (LUNA -1.98%) stablecoin, which it has since changed its name to Terra Classic (LUNC -0.17%), appears to have decreased. The decoupling of the third most popular stablecoin at the time caused a widespread market sell-off. In turn, this gave rise to popular lending platforms such as Voyager (VGX 3.75%) and Celsius (CEL -17.66%) to become insolvent and then prohibit customers from withdrawing funds.

This sale sent shock waves throughout the market, even causing one of the largest crypto hedge funds, Three Arrows Capital, to default on debt owed to Voyager. In an official notice, Voyager claimed that the hedge fund failed to repay $350 million of stablecoin USD coin (USDC -0.64%) and another $323 million Bitcoin (BTC -1.51%). Those shock waves seem to have faded. JPMorgan analysts cited that the contagion stemming from the Terra stablecoin de-pegging fallout may have subsided enough for the market to pull away from these ailments.

Hope on the horizon

The second reason why JPMorgan believes crypto has found a floor is related to the renewed sense of optimism in the market, thanks in large part to a specific event. Known as “The Merge”, the highly anticipated Ethereum (ETH -1.65%) transition to proof of stake now has a deadline set for sometime in September 2022. Since that announcement was made, the entire cryptocurrency market has made a serious comeback in the past month.

From their mid-July lows, market leaders Bitcoin and Ethereum have erased a majority of those declines. Ethereum has roughly doubled from a low of around $950, while Bitcoin has climbed more than 20% in the past month after previously falling to around $19,000. With the same momentum, the entire cryptocurrency market has retreated nearly 30% since mid-July.

Even better: Analysts believe that if the final test for Ethereum’s merger is completed, the markets could go even higher. Based on the timelines circulating, a successful launch of the final test would mean that The Merge could be completed sometime during the week of September 19th.

Textbook allocation at the bottom

For cryptocurrency investors – especially Bitcoin or Ethereum – this is exactly the kind of recovery you want to see. Considering current progress in the macro environment alongside dynamism in the micro environment, it’s hard to argue against JPMorgan’s case that a bottom is in.

To minimize risk when investing at or near a perceived “bottom,” investors should watch for prices to stabilize before allocating more capital to positions. That is exactly where we find ourselves today. After falling for several weeks, most cryptocurrencies have leveled off and even recovered some of those losses from June and July.

At this point, the risk seems minimal compared to the long-term upside. Prices won’t return to the 2021 highs overnight — in fact, there’s no guarantee they ever will — but long-term investors can benefit from buying today in preparation for the possible next rally.