Inflows into Hyperliquid (HYPE) exchange-traded funds (ETFs) have largely ground to a halt after surging in May and June, reflecting growing concerns over the protocol's competitive outlook, according to JPMorgan (JPM).

The Wall Street bank said Hyperliquid ETFs led non-bitcoin crypto funds in inflows relative to assets under management during May and June, but that momentum faded noticeably in July and early August. The bank attributed the slowdown to rising competition from regulated crypto derivatives platforms and increasingly crowded prediction markets.

"We see significant challenges to the market share of decentralized platforms such as Hyperliquid," analysts led by Nikolaos Panigirtzoglou wrote in a Thursday report.

Hyperliquid has been one of crypto's biggest breakout stories this year, with its HYPE token surging as traders flocked to the protocol's decentralized perpetual futures exchange. Perpetual futures — derivative contracts with no expiry date that allow leveraged exposure to crypto prices — have become the highest-volume segment of crypto trading, and Hyperliquid's on-chain order book model positioned it as a leader among decentralized venues. That rapid growth has turned Hyperliquid into one of the largest crypto ecosystems outside of bitcoin and ether, attracting institutional capital, corporate treasury buyers, and ETF issuers.

According to JPMorgan analysts, the cooling demand comes as decentralized derivatives platforms face mounting competition from regulated centralized exchanges. The report noted that the rollout of U.S.-regulated crypto perpetual futures products — which regulators in major jurisdictions have been moving toward — could shift trading activity away from offshore decentralized venues such as Hyperliquid, which remain exposed to concerns around licensing, compliance, and investor protections.

The analysts also pointed to intensifying competition in prediction markets — an area Hyperliquid is expanding into as it seeks to diversify beyond perpetual futures trading, where transaction fees underpin much of the token's value. The prediction-market sector has drawn growing user attention and trading volume over the past year, with multiple platforms vying for liquidity.

The bank cautioned that while Hyperliquid has been one of crypto's standout performers this year — becoming the fourth-largest asset held in corporate crypto treasuries behind bitcoin (BTC), ether (ETH), and solana (SOL) — whether it can continue gaining market share against larger rivals such as Solana and XRP remains uncertain.

Bitcoin and ether continue to dominate the crypto ETF market, with roughly $77 billion and $10 billion in assets under management, respectively. Meanwhile, ETFs tied to other cryptocurrencies, including Solana, XRP, and Hyperliquid, collectively account for just $2 billion to $3 billion, the report added — underscoring how far alternative-crypto ETFs still trail the two largest assets in attracting institutional capital.

Despite the recent pause in ETF inflows, HYPE remains one of the fastest-growing crypto assets by market adoption metrics.

HYPE was trading more than 3% lower over the past 24 hours, around $55.30.