JPMorgan Insights on Retail-Driven Selloff in Cryptocurrency and Equities

JPMorgan, a leading global investment bank, has provided valuable insights into recent developments within the cryptocurrency and equity markets. Nikolaos Panigirtzoglou, a managing director specializing in Global Market Strategy, including Alternatives and Digital Assets, offered his perspective on these trends in a recent Linkedin post.

Retail vs. Institutional Dynamics

According to Panigirtzoglou, recent weeks have witnessed significant selling and profit-taking activities in both equity and cryptocurrency markets. Interestingly, retail investors seem to have played a more dominant role in these movements compared to institutional investors. He noted, “The past weeks saw significant selling/profit taking in both equity and crypto markets with perhaps retail investors playing a bigger role than institutional investors.”

Panigirtzoglou highlighted various indicators suggesting a shift in retail investor sentiment towards equities. These indicators include small traders’ option flows, the relative performance of retail investors’ favorites against the S&P500 index, and sentiment surveys such as the AAII survey.

Regarding institutional investors, Panigirtzoglou identified momentum traders like CTAs (commodity trading advisors) as the primary drivers behind profit-taking activities. He said, “In terms of institutional investors, it has been mostly momentum traders such as CTAs or other quantitative funds that appear to have taken profit on previous extreme long positions in equities, bitcoin and gold.”

He further added, “Retail investors appear to have sold both crypto and equity funds. And several proxies of the retail impulse into equities have downshifted over the past month such as those based on small traders’ option flows, on the relative performance of retail investors’ favorites vs. S&P500 index, or on retail investors’ sentiment surveys such as the AAII [American Association of Individual Investors] survey.”

Earlier this month, Panigirtzoglou had expressed anticipations of a near-term decline in Bitcoin’s price following the halving event, citing overbought conditions. He also raised concerns about the subdued level of venture capital funding for cryptocurrency projects. He stated, “We do not expect bitcoin price increases post halving as it has been already priced in. In fact, we see downside for the bitcoin price post halving for several reasons.”