JPMorgan suggests that the surge in the cryptocurrency market appears excessive.

In the recent month, the digital asset market experienced substantial gains driven by the anticipation surrounding the potential approval of bitcoin spot exchange-traded funds (ETFs). However, JPMorgan, in a research report released last week, cautioned that this optimistic sentiment might be unfounded.

The surge in digital assets has been fueled by bullish expectations linked to the possible approval of spot bitcoin ETFs. JPMorgan identified two primary arguments contributing to this positive sentiment. Firstly, the approval of a spot bitcoin ETF is believed to attract new capital into the crypto markets as these newly approved ETFs witness inflows. Secondly, such an approval would signify a victory for the crypto industry and a setback for the Securities and Exchange Commission (SEC), potentially leading to a more lenient regulatory approach from the SEC towards the crypto sector.

However, JPMorgan expressed skepticism about both arguments. Instead of new capital entering the crypto sector, the bank suggests that existing capital might shift from current bitcoin products, such as the Grayscale Bitcoin Trust (GBTC), bitcoin futures ETFs, and listed mining companies, towards the newly approved spot ETFs. The report highlighted that similar ETFs already exist in Canada and Europe but have failed to garner significant investor interest.

While recent legal rulings, particularly those involving Ripple and Grayscale, are seen as setbacks for the SEC, JPMorgan emphasized that it remains uncertain whether regulatory scrutiny on the crypto industry will significantly diminish. The report noted that the U.S. crypto industry still awaits regulatory clarity, and the outcome of recent legal cases is unlikely to prompt a major shift in the stance of U.S. lawmakers, especially in light of the FTX fraud incident.

Additionally, the report addressed the notion of the upcoming bitcoin halving, expected in April or May of the following year, as a potential bullish catalyst for crypto markets. JPMorgan, however, dismissed this argument, asserting that the impact of the halving is unpredictable and has already been factored into current market prices.