Investing.com -- The cryptocurrency market faces near-term downside risks as momentum slows and demand weakens, according to JPMorgan.

The bank said in a note Thursday that after reaching a record high of $3.72 trillion in December 2024, the total crypto market cap has declined by 15% to $3.17 trillion, signaling a loss of investor confidence.

JPMorgan analysts point to futures market trends as a key warning sign.

“The correction over the past couple of months saw both bitcoin and ethereum futures approaching backwardation,” the firm noted, referencing a shift where futures prices fall below spot prices.

“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.”

Under normal conditions, futures for bitcoin and ethereum trade at a premium to spot prices—a market structure known as contango.

JPMorgan explains that this spread is often driven by high interest rates in crypto lending, where annualized rates range between 5% and 10%.

However, “when demand and price expectations weaken, the futures curve shifts towards backwardation,” JPMorgan wrote, adding that a similar trend occurred in June and July last year.

The bank cites two primary reasons for this weakening demand. First, institutional investors may be taking profits amid a lack of short-term catalysts.

“As we argued in our recent publication, crypto initiatives by the new US administration are more likely to take place in the second half of the year. Until then, weakening demand poses downside risk to crypto markets,” stated JPMorgan.

Second, momentum-driven funds such as CTAs are said to be pulling back. “Momentum decay has been hitting both bitcoin and ethereum,” JPMorgan noted, with ethereum’s momentum signal already turning negative.

Without fresh catalysts, crypto markets could face further downside pressure in the near term, the firm warned