Liquidity in the bitcoin market should recover quickly after the futures-driven price crash, JPMorgan says

• Liquidity in the bitcoin market should recovery quickly after the recent price falls, JPMorgan said.
• The bank's analysts said activity in the spot and futures markets is growing more resilient.
• They said the recent price falls were worsened by the liquidation of futures contracts.

Liquidity in the cryptocurrency market should recover rapidly after bitcoin's recent tumble, which was worsened by a sell-off in futures contracts, according to analysts at JPMorgan.

The volume of activity on bitcoin exchanges is generally proving more resilient and quicker to recover as time goes on, the analysts, led by Joshua Younger, said. The note was published Wednesday and seen by Insider on Monday.

They added that traders' buying of futures contracts appeared to have picked up sharply again after the bitcoin price fell dramatically on April 18, and that bitcoin mining rates had also recovered after a recent drop.

Bitcoin started to slide on Friday, April 16 and continued to fall across the week to below $50,000 from a high of more than $64,000 touched a week earlier.

However, bitcoin picked up on Monday, rising roughly 4% to trade at around $52,600.

Analysts said a number of factors seemed to have triggered the recent drop, including general fatigue and profit-taking after a rapid rally during Coinbase's listing on the stock market; a sharp drop in mining rates around the world; and a ban on cryptocurrency payments in Turkey.

JPMorgan's note said bitcoin derivatives, such as futures, were likely a key accelerant. Futures are contracts to buy, or sell, a particular asset at a specific price and at a specific time at a later date.

Bitcoin futures are often traded using borrowed money and can add to volatility in the market. JPMorgan said billions of dollars of long positions - that is, bets that the price will rise - had to be unwound during the recent sell-off, adding to downward momentum.

Yet the analysts said: "Data tracking the futures market suggested open interest has mostly stabilized after steep drops coming out of the weekend [beginning April 17]." They added that the mining of bitcoin around the world appeared to have recovered.

The analysts also said round-the-clock trading of bitcoin, which is very rare in financial markets, should support the market.

"A well-developed norm of access to 24/7 stable liquidity pools should benefit cryptocurrencies over time, as the market continues to deepen and mature," they wrote.

"Data suggest [the] worst of these liquidations is likely behind us, suggesting little overhang to work through.

"A recovery in [mining] and signs of more efficient arbitrage trading suggests liquidity should continue to improve from here."