Institutions are not buying the dip in bitcoin, and it's fair value could be as low as $23,000, JPMorgan says

• Institutions are not buying the dip in bitcoin, according to a Wednesday note from JPMorgan.
• The bank said the fair value of bitcoin over the medium-term could range from $23,000-$35,000.
• Headwinds still exist for bitcoin, including the end of a six-month lock up period for nearly $4 billion worth of the Grayscale Bitcoin Trust.
• Sign up here for our daily newsletter, 10 Things Before the Opening Bell.

The recent decline in bitcoin may take time to recover as institutions fail to step in and buy the dip, according to a Wednesday note from JPMorgan.

The bank sees the fair value of bitcoin over the medium-term at $23,000-$35,000, based on the current volatility ratio of bitcoin to gold. Previously, JPMorgan outlined how bitcoin could hit $140,000 if it matches the allocation and volatility profile of gold.

But on Wednesday, the bank said, "full convergence or equalization of volatilities or allocations [between gold and bitcoin] is unlikely in the foreseeable future."

Bitcoin has seen its value plummet about 50% since its peak in mid-April, and many have attributed part of that decline to China's crackdown on cryptocurrency mining. But JPMorgan views the recent developments out of China as a positive for bitcoin in the long-term.

"The crackdown on mining operations in China should be considered as positive for bitcoin over the medium-term as it accelerates a shift away from China's high share in bitcoin's hash rate, reducing concentration," JPMorgan said.

The bank views bitcoin's recent decline more of a continuation of weak flows and price dynamics, rather than pinning it on China's mining crackdown. And the weak flows suggest institutions are not stepping in to buy the dip in bitcoin at current levels.

"More than a month after the May 19 crypto crash, bitcoin funds continue to bleed, even as inflows into physical gold ETFs stopped. This suggests that institutional investors, who tend to invest via regulated vehicles such as publicly listed bitcoin funds or CME bitcoin futures, still exhibit little appetite to buy the bitcoin dip," the note said.

Finally, JPMorgan sees one big headwind remaining for bitcoin: the expected selling of the Grayscale Bitcoin Trust following the end of a six-month lock-up period. The bank noted that nearly $4 billion flowed into the trust fund in December and January and is subject to the six-month lock-up period. That period ends in June and July, and investors will likely sell at least some of the trust fund given the recent volatility.

"Despite this week's correction we are reluctant to abandon our negative outlook for bitcoin and crypto markets more generally. Despite some improvement, our signals remain overall bearish," JPMorgan concluded.