Over the last seven months or so, the total cryptocurrency market cap has been cut by more than half. At one point in late June, crypto collectively lost nearly 65% of its value since the new year.
But thanks to some newfound momentum, prices have recovered in the last few weeks. The upswing seems to have been substantial enough for one of the world's leading financial service firms, JPMorgan Chase (JPM 0.85%), to believe that the asset class has bottomed out. In a statement this week, analysts from the company asserted that, due to a few factors, the recent rally in prices might prove that the market has "found a floor."
Stormy seas calm
The first topic JPMorgan highlighted was related to the systemic impact induced by the implosion of Terra's (LUNA 0.23%) stablecoin, which has since rebranded to Terra Classic (LUNC +0.70%), seems to have subsided. The de-pegging of the third-most-popular stablecoin at the time caused a widespread market sell-off. In turn, this caused popular lending platforms like Voyager (VGX +0.00%) and Celsius (CEL +0.04%) to become insolvent and subsequently prohibit customers from withdrawing funds.
That sell-off sent shockwaves throughout the entire market, even causing one of the largest crypto hedge funds, Three Arrows Capital, to default on debts it owed to Voyager. In an official notice, Voyager claimed that the hedge fund failed to repay $350 million of the stablecoin USD Coin (USDC +0.00%) and another $323 million worth of Bitcoin (BTC 1.84%). Those shockwaves seem to have faded. JPMorgan analysts cited that the contagion originating from the fallout of the Terra stablecoin de-pegging might have subsided enough for the market to shrug off those woes.
Hope on the horizon
The second reason JPMorgan believes crypto has found a floor relates to the renewed sense of optimism in the market thanks in large part to one specific event. Known as "The Merge," the highly anticipated Ethereum (ETH 2.09%) transition to proof of stake now has a deadline set for some time in September 2022. Since that announcement was made, the entire cryptocurrency market has mounted a serious comeback in the last month.
From their mid-July lows, market leaders Bitcoin and Ethereum have erased a majority of those declines. Ethereum has just about doubled from its low of around $950, while Bitcoin has climbed more than 20% in the last month after previously falling to roughly $19,000. Riding that same momentum, the entire cryptocurrency market has bounced back nearly 30% since the middle of July.
CRYPTO: ETH
Key Data Points
Even better: Analysts believe that if the final test for Ethereum's merge is completed successfully, markets could go even higher. Based on the timelines circulating, a successful launch of the final test would mean The Merge could be slated for completion sometime during the week of Sept. 19.
Textbook allocation at the bottom
For investors of cryptocurrency, -- in particular Bitcoin or Ethereum -- this is exactly the type of recovery you want to see. Considering current progress in the macro environment together with dynamics in the micro environment, it's difficult to argue against JPMorgan's case that a bottom is in.
To minimize risk when investing at or near a perceived "bottom," investors should look for prices to stabilize before allocating more capital to positions. That is exactly where we find ourselves today. After falling for weeks, most cryptocurrencies have leveled out and even regained some of those losses from June and July.
At this point in time, the amount of risk present appears minimal compared to the long-term upside. Prices won't return to the highs of 2021 overnight -- in fact, there's no guarantee they ever will -- but long-term investors can take advantage of buying today in preparation for the possible next ascent.
