- Crypto prices have limited upside ahead as the share of stablecoins relative to the total crypto market fall, according to JPMorgan.
- Stablecoins' share of the total crypto market have fallen to 7% from 10%, according to the bank.
- Stablecoins are viewed as cash on the sidelines that could be utilized to buy cryptocurrencies.
The ongoing recovery in the cryptocurrency market amid a months-long bear market could be losing steam, according to a Wednesday note from JPMorgan.
The bank highlighted the recent surge in bitcoin and ether, which started in early March after crippling economic sanctions were imposed on Russia from Western countries.
"These sanctions had raised expectations that cryptocurrencies will be used more extensively in the future to circumvent the traditional banking system given cryptocurrencies are not attached or depend on any government," JPMorgan explained.
But now the rally in crypto is likely standing on its last legs, according to the bank, as stablecoins see a swift decline in total share of the overall crypto market cap.
"We had argued previously that the high [of] almost 10% share of stablecoins in total crypto market cap pointed to further upside for crypto markets at the time," JPMorgan said, with the thinking that stablecoins represent dry powder, or cash on the sidelines for crypto investors to put to work in different coins.
Bitcoin and ether surged more than 30% from their respective February lows, amid a combination of short covering and bitcoin fund inflows helped sustain the rally, with $210 million flowing into the Purpose Bitcoin ETF since March 7, according to the bank.
"Short covering has been more intense for ethereum than bitcoin in recent weeks... this short covering helped to push our position proxy based on CME ethereum futures to overbought territory," JPMorgan said.
But stablecoins' share of the total crypto market cap has since fallen to 7%, which brings it back to its trend since 2020, according to the bank.
"In other words, the share of stablecoins in total crypto market cap no longer looks excessive and as a result we believe that any further upside for crypto markets from here would likely be more limited," JPMorgan said.
