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The Cryptocurrency Market Lacks Positive Catalysts in the Near Term
The Cryptocurrency Market Lacks Positive Catalysts in the Near Term
The cryptocurrency market is lacking positive catalysts in the near term, according to a report from Wall Street bank JPMorgan.
Crypto Markets in Recent Months See Correction
The correction in crypto markets in recent months has seen both bitcoin (BTC) and ether (ETH) futures near backwardation, which is a sign of lower demand.
Backwardation occurs when the spot price of an asset is higher than the price trading in the futures market.
“This is a negative development and indicative of demand weakness by those institutional investors that use regulated CME futures contracts to gain exposure into these two cryptocurrencies,” analysts led Nikolaos Panigirtzoglou wrote.
If demand for bitcoin and ether futures is healthy, the futures cost more than the spot price, and the curve is said to be in contango, the bank noted.
Weak Demand from Systematic and Momentum-Driven Funds
This weakness in demand could be due to a number of reasons.
Positive crypto initiatives by Trump’s new administration are more likely to kick in during the second half of the year, the bank said, and this means institutional investors are likely taking profits due to a lack of short-term catalysts.
Lower demand from systematic and momentum-driven funds, such as CTAs, has also affected bitcoin and ether futures, JPMorgan added.
Conclusion
The cryptocurrency market is currently lacking positive catalysts in the near term, with a correction in crypto markets in recent months resulting in a sign of lower demand. Demand weakness from institutional investors and systematic and momentum-driven funds are contributing factors to this trend.
FAQs
Q: What is backwardation in the context of cryptocurrency markets?
A: Backwardation occurs when the spot price of an asset is higher than the price trading in the futures market.
Q: What is contango in the context of cryptocurrency markets?
A: Contango occurs when the futures cost more than the spot price, and the curve is said to be in contango.
Q: What are systematic and momentum-driven funds?
A: Systematic and momentum-driven funds are types of investment funds that use systematic or momentum-based strategies to generate returns.
Q: What are CTAs (Commodity Trading Advisors)?
A: CTAs are firms or individuals that trade in the commodities market and use various strategies to generate returns.
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