JPMorgan: Cryptocurrencies to See "Temporary" Rebound in August

According to a report by The Block, JPMorgan has issued a report stating that cryptocurrencies are expected to rebound starting in August, although these rebounds may only be temporary.

Cryptocurrency Rebound May Be Temporary

A Morgan Stanley analyst stated that any rebound in cryptocurrency prices from this point onwards may be temporary and strategic, rather than the beginning of a sustained upward trend.

The chart below shows the difference between the price of Bitcoin and the volatility-adjusted price of gold by Morgan Stanley. Historically, the mean reverts near the zero axis. With Bitcoin's current price around $67,500, compared to its production cost of around $43,000 and the volatility-adjusted price of gold at around $53,000, the price is considered high. This limits the upside potential for Bitcoin in the long term.

Cryptocurrency Expected to Rebound Starting August

With reduced liquidation after July, Morgan Stanley expects cryptocurrencies to rebound starting in August. The recent weakness in Bitcoin futures is attributed to the liquidation of Gemini and Mt. Gox creditors, as well as the German government selling confiscated Bitcoin. These liquidations are expected to diminish after July, and Morgan Stanley anticipates Bitcoin futures to rebound starting in August, aligning with the recent rise in gold futures.

Gold has recently hit historical highs frequently, and Morgan Stanley believes that momentum traders such as CTA commodity trading advisors have played a significant role in driving gold futures.

The momentum signal for gold soared into overbought territory last April.

Gold hits new highs again, Trump boosts gold prices, will Bitcoin follow suit?

Trump May Win Presidency

Morgan Stanley analysts also made predictions about the November U.S. presidential election, suggesting that Trump may win, starting his second presidential term. Apart from the general belief among investors, Trump is seen as more supportive of cryptocurrency companies and regulations than the current Biden administration. Trump's potential trade policies could lead to increased diversification of gold holdings by central banks in emerging markets, especially the Chinese central bank.