JPMorgan Report: Crypto Downturn Driven by Native Traders, Not Institutions

Executive Summary

A recent analysis by JPMorgan indicates that the latest cryptocurrency market downturn was predominantly fueled by the actions of retail and crypto-native investors, rather than traditional financial institutions. This conclusion is drawn from significant deleveraging observed in perpetual futures markets, while institutional investment vehicles maintained relative stability. The report highlights a potential shift in the primary drivers of crypto market volatility.

The Event in Detail

JPMorgan's findings specify that crypto-native traders were the principal catalysts behind the recent market correction. Evidence supporting this distinction includes the behavior of various market segments:

Bitcoin spot ETFs recorded minor cumulative outflows totaling $220 million, representing 0.14% of their assets under management (AUM) between October 10 and October 14. Similarly, Ethereum ETFs saw outflows of $370 million, or 1.23% of AUM, figures that JPMorgan analysts describe as modest, indicating limited panic among long-term investors.

In contrast, perpetual futures markets experienced a sharp 40% drop in open interest for both Bitcoin and Ethereum contracts in dollar terms. This decline exceeded the actual spot price reduction of these assets, suggesting extensive deleveraging and forced unwinding of positions, particularly by highly leveraged crypto-native traders operating on offshore platforms. This pattern indicates that these participants were the primary drivers of the liquidation cascade.

CME Bitcoin futures, often considered a gauge of institutional positioning, showed minimal liquidations during the period. While CME Ethereum futures exhibited heavier selling, analysts attribute this more to momentum-driven traders, such as commodity trading advisors and quant funds, reducing risk rather than broad institutional panic.

Market Implications

This analysis underscores a critical shift in the cryptocurrency market's structure, with volatility increasingly originating from crypto-native and retail investor behavior rather than institutional flows. This development has several potential implications for market stability, investment strategies, and the overall perception of the market's maturity. The extensive deleveraging observed in perpetual futures suggests an ongoing process of short-term price discovery and potentially a slower recovery trajectory unless substantial new capital inflows occur. This divergence in behavior also highlights a growing divide between the regulated and unregulated sectors of the cryptocurrency market.

Expert Commentary

JPMorgan analysts, led by Managing Director Nikolaos Panigirtzoglou, explicitly stated that the crypto market collapse was triggered by leveraged crypto-native investors, distinguishing them from institutional or ETF holders. They noted that "ETF flows held up well, showing long-term investor stability." This perspective suggests that traditional institutional investors, who are more inclined to utilize regulated products such as CME futures or crypto ETFs, largely remained on the sidelines during the intense volatility.

Broader Context

Despite the recent short-term market correction, the broader sentiment among institutional investors towards digital assets remains positive. A survey conducted in January 2025 by Coinbase and EY-Parthenon among over 350 institutional investors globally revealed that more than three-quarters intend to increase their allocations to digital assets in 2025. Approximately 59% plan to allocate over 5% of their assets under management to digital assets or related products.

Regulatory clarity is cited as the primary catalyst for future growth in digital assets, indicating a demand for a more defined global regulatory framework. Additionally, institutional interest in stablecoins for yield and transactional convenience, and tokenized assets for portfolio diversification, is increasing. This sustained institutional engagement suggests a maturing market with expanded participation through exchange-traded products (ETPs) and a positive outlook on the evolving regulatory landscape.