JPMorgan expects the recent sell-off in the cryptocurrency market to be over, and expects a limited decline and possible stabilization in the near term.

The recent downturn in the cryptocurrency markets appears to be coming to an end, according to a new analysis by JPMorgan Chase & Co.

The company argues that liquidations of long positions in the cryptocurrency world have mostly resolved and that further sharp declines are unlikely. Although this behavior continues to reverberate, the recent behavior of the cryptocurrency markets indicates that the market unbundling phase is coming to an end.

The open interest in Bitcoin (BTC) futures traded on the Chicago Mercantile Exchange (CME) indicates that a market correction is almost over. Open interest, a measure that represents the number of active and unsettled futures contracts, typically appears when a price trend is weakening. Analysts, including Nikolaos Panigirzoglu, have noted that the drop in open interest contracts signals a potential end to the recent sell-off.

As a result of this analysis, the JPMorgan team sees “limited downside for the cryptocurrency markets in the near term.”

Over the past two weeks, Bitcoin has seen a drop of nearly 12% after maintaining a flat trading pattern for about a month.

Earlier this season, the cryptocurrency market was energized by several developments deemed favorable, such as a series of orders for the first US exchange-traded funds (ETFs) linked to the spot price of Bitcoin. BlackRock Inc. led the charge.

Moreover, the court’s decision in favor of Ripple Labs in its ongoing legal battle with the Securities and Exchange Commission (SEC) emboldened the broader market.

However, some of that initial excitement is beginning to wane. Traders now expect decisions on instant approvals for the Bitcoin ETF and the SEC’s appeal against the court’s ruling in favor of Ripple. The result, which is not expected before next year, has created a “new round of legal uncertainty”, which has the markets reacting highly to legal and regulatory news.

Interestingly, the report also indicated additional catalysts for a market correction. The news that Elon Musk’s SpaceX company had written off some of its Bitcoin holdings last quarter and concerns about growth in China also played a role in the recent cryptocurrency market correction.

Broader Market Conditions

This decline was not isolated to cryptocurrencies. It was partly a reflection of a broader correction in risk assets such as equities, driven by “foamy concentrating in technology and rising real yields in the US”, according to the research note.

Risky assets saw further turmoil last Friday after Federal Reserve Chairman Jerome Powell signaled a willingness to raise interest rates further if necessary, intending to maintain higher borrowing costs until inflation convincingly approaches the target set by policymakers.

Overall, the next few months are likely to be crucial for the cryptocurrency market and will provide more insight into these dynamics.