Institutional investors are on the road to quitting Bitcoin, says JP Morgan.
Institutional investors are on the road to abandoning Bitcoin, opting for Ethereum, according to a report by us JP Morgan, which points out that this development was expected for a number of reasons.
To start with, the investment bank prefers Ethereum as a value reserve.
The Ethereum ecosystem supports smart contracts while providing developers with application building tools.
Most decentralized finance (DeFi) apps are “built” on the Ethereum network and most NFTs issued are purchased with its tokens. Understandably, the higher number of transactions in Ethereum versus Bitcoin reflects this picture.
Ethereum can also be used to store information, securely and privately, in a decentralized ledger.
And this information can be made token and negotiated.
This means that the Ethereum platform has the potential to become a large market for reliable information.
JPMorgan on Bitcoin
Turning now to Bitcoin, JP Morgan sees a lack of demand from institutionalists who tend to use futures to gain exposure to the most popular cryptocurrency.
As the investment bank explains, in a normal environment, when the demand for Bitcoin-related futures is not weak, the futures curve is in contango (Contango is a situation where the futures of a commodity are higher than the expected spot price of the contract at maturity).
Typically high (over 5% year-on-year) futures against spot price are a function of the high “risk-free” interest rate or opportunity costs implied in the cryptocurrency markets.
Borrowing dollars in cryptocurrency markets usually means 5-10% annual interest rates, and this high “risk-free” interest rate is commonplace in speculative futures trading against spot price in both bitcoin and ethereum futures.
Adding to this the increased “risk-free” storage costs of about 2% per annum, as well as similar high transaction costs due to fragmentation in the markets, one can easily see why futures show a spread of up to 10% per annum, which could be justified in a normal buying environment in bitcoin or ethereum futures.
But when demand becomes anemic, price expectations become bearish.
JPMorgan believes this is a negative sign. In contrast, the largest U.S. bank points out in its futures chart that Ethereum remains in Contango – it grew in September at a rate of 7% year on year.
This, as JP Morgan summarizes, “shows much healthier demand for ethereum versus bitcoin than institutional investors.”
JPMorgan Ditching Bitcoin is Old News?
Let’s don’t forget though that JPMorgan along with Microsoft and 30 other Large Corporations have formed the Enterprise Ethereum Alliance (EEA.) back in 2017.
Back then, news titles from various business outlets soared with headlines such as ”Bitcoin move over, 2017 could be Ethereum’s year” etc.