JPMorgan expects the recent trend of crypto liquidations to ease this month, with the market projected to recover starting in August. In a recent research report, the bank has adjusted its estimate for the total crypto net flow for the year, lowering it from $12 billion to $8 billion. The reduction in the estimate reflects the skepticism that the previously forecasted $12 billion could be maintained, considering bitcoin’s current high value relative to its production cost and the price of gold.

Factors Influencing the Revised Estimate

The main reason for the reduction in the net flow estimate is the decrease in bitcoin reserves across exchanges over the past month. Analysts, led by Nikolaos Panigirtzoglou, attribute this decline to several factors. One significant reason is the liquidation of bitcoin by creditors of the now-defunct crypto exchange Mt. Gox and Gemini. Additionally, the German government has been selling off cryptocurrency assets that were seized during criminal investigations, further contributing to the decrease in reserves.

JPMorgan’s revised estimate of $8 billion includes various components. By July 9, there was a net inflow of $14 billion into crypto funds. There were also $5 billion worth of flows into Chicago Mercantile Exchange (CME) futures and $5.7 billion raised by crypto venture capital funds. However, these inflows were offset by a $17 billion adjustment. This adjustment accounts for the rotation from wallets on exchanges to new spot bitcoin exchange-traded funds (ETFs).

Outlook for the Crypto Market

Despite the current downturn in liquidations and the reduced net flow estimate, JPMorgan remains optimistic about the future of the crypto market. The bank anticipates that the easing of liquidations will pave the way for a market rebound starting in August. The initial concerns regarding the sustainability of the $12 billion net flow estimate stemmed from the high valuation of bitcoin compared to its production cost and the price of gold. However, with the recent adjustments, the market is better positioned for recovery.

In conclusion, while JPMorgan has lowered its year-to-date crypto net flow estimate to $8 billion, the outlook for the crypto market remains positive. The reduction is driven by recent bitcoin liquidations and the rotation of assets into new financial products. With these factors taken into account, the market is expected to stabilize and rebound in the coming months, starting in August.