JPMorgan: The Industry Will Be Stable, Leading Companies Will Save Others

The historic debt reduction in the cryptocurrency market could be coming to an end, which could indicate that the worst of the bear market is over, according to a JPMorgan analyst.

In a June note, JPMorgan strategist Nikolaos Panigirtzoglou pointed to the increase in companies' willingness to bail out firms and the healthy pace of venture capital funding in May and June as evidence for his optimism. He said key indicators support his assessment:

"Indicators like our Net Leverage metric suggest that deleveraging is already well advanced."

The deleveraging of major crypto firms, where their assets have been sold either willingly, in a rush, or via liquidation, started largely in May when the Terra ecosystem collapsed and wiped out tens of billions of dollars. Since then, crypto lenders BlockFi and Celsius, and investment firm Three Arrows Capital have had their own troubles.

Panigirtzoglou said that some crypto firms could be suffering from such a severe reduction in debt that their situation "could indicate that the aftershocks of this year's crypto market drop are still being felt."

In The End of Debt: Money, Credit & the Future of Finance, Panigirtzoglou suggests that debt could be coming to an end, with crypto entities stepping in to save struggling businesses.

"The fact that crypto entities with the stronger balance sheets are currently stepping in to help contain contagion.”

With the recent misfortunes of blockchain companies such as Three Arrows Capital and Celsius, Sam Bankman-Fried’s FTX exchange is reportedly preparing to spread its influence across the industry. Cointelegraph reported that FTX may be offering to buy BlockFi, a crypto lending platform, for $25 million on June 30. However, BlockFi CEO Zac Prince denied the rumors in a tweet on June 30. 

Panigirtzoglou sees the healthy pace of venture capital funding in the crypto space as a positive sign. JPMorgan estimates that there was about $5 billion in VC funding to crypto firms in May and June. Fundraising metrics tracker Dove Metrics using Airtable’s data estimates crypto funding is higher, at $8.6B in the same period.

Funding in May and June 2021 was up $3.4 billion from March and April, but down $2.2 billion from that period in 2019. 

JPMorgan's latest report should be a breath of fresh air for crypto investors who have suffered through what Glassnode has called the worst bear market in the history of cryptocurrency trading. Since November 2021, when the total cryptocurrency market cap was over $3 trillion, it has fallen to less than $1 trillion according to CoinGecko.