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.