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Bitcoin Illiquidity Could Cause Further Problems, Claim JP Morgan Strategists

JPMorgan strategists have supported the narrative that Bitcoin is in a liquidity crisis. However, instead of highlighting it as a potential catalyst for further price increases, they warned that the asset could experience a sharp price drop just as quickly. 

  • The primary cryptocurrency reached yet another record during the weekend with a new all-time high of $58,400 (on Bitstamp). However, the price corrected somewhat sharply, and BTC lost over $4,000 of value in a matter of hours and dipped to $54,000.
  • Analysts from the giant US multinational banking institution, JPMorgan Chase & Co, suggested that these developments could have been expected due to BTC’s sharply declining liquidity. 
  • They referred to the bitcoin purchases from Tesla, MicroStrategy, and other giant corporations and institutions, while the number of newly-created tokens dropped in the middle of 2020 following the third-ever halving.
  • The strategists wrote that the “market liquidity is currently much lower for Bitcoin than in gold or the S&P 500,” which implies that even small flows or inflows could have a significant price impact. 
  • Interestingly, the narrative that BTC is in a liquidity crisis has been discussed in the community before as well. However, the primary sentiment is that such developments are ultimately beneficial for the asset.
  • Basic economic rules dictate that if the supply of an asset decreases, while the demand stays the same or increases, the price should, in theory, rise. 
  • Glassnode CT Rafael Schultze-Kraft recently highlighted this in a report by breaching the adjusted circulating supply, the depletion of funds from exchanges, and the institutional adoption. He classified this data as “extremely bullish” for the cryptocurrency.


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