Will Bitcoin Ever Shine as Bright as Gold? JPMorgan Says Not Likely

March 11, 2024

Bitcoin is unlikely to match gold’s allocation in investors’ portfolios in nominal terms, according to a new report by JPMorgan.

The bank said that the cryptocurrency’s high volatility and risk make it unrealistic to expect it to surpass the metal’s market cap of $3.3 trillion.

Gold is often seen as a safe-haven asset and a hedge against inflation, while Bitcoin is perceived as a digital version of gold by some investors. However, JPMorgan analysts led by Nikolaos Panigirtzoglou argued that the comparison is not fair as Bitcoin is 3.7 times more volatile than gold.

“If Bitcoin were to match gold in risk capital terms, the implied allocation drops to $0.9 trillion, implying a price of $45,000, notably lower than its current level of around $67,400,” the report said. “At $66K currently, the implied allocation to Bitcoin within investor’s portfolios has already surpassed that of gold in volatility adjusted terms.”

The report also estimated the potential size of the Bitcoin spot ETF market, which has recently gained traction in the U.S. with several approvals from the Securities and Exchange Commission (SEC). Applying the volatility 3.7 ratio, the bank said the Bitcoin ETF market could grow to around $62 billion in the next two to three years.

“Net inflow into spot Bitcoin ETFs is about $9 billion, some of which could have been a rotational shift from existing products,” the report said. “This is a realistic target of the potential size of spot Bitcoin ETFs over time perhaps within two to three years, though much of the implied net inflow could represent a continued rotational shift from existing instruments and venues to ETFs.”

Bitcoin has been trading near its all-time high of $70,000, boosted by rising inflation expectations and the upcoming halving event, which will reduce the supply of new coins by 50%. The cryptocurrency has also benefited from growing adoption by institutional and retail investors, and increased regulatory clarity.

However, JPMorgan warned that Bitcoin still faces significant challenges and uncertainties, such as regulatory risks, environmental concerns, cyberattacks, competition from other cryptocurrencies, and technological innovations. The bank said these factors could limit Bitcoin’s long-term potential and prevent it from reaching gold’s status as a store of value.

Why compare Bitcoin to gold? The report highlights that investors perceive Bitcoin as a digital counterpart to gold. Both assets share a reputation for being stores of value, albeit in different forms. However, most investors consider risk and volatility when allocating across asset classes. Given Bitcoin’s significantly higher volatility, expecting it to match gold in notional amounts within portfolios would be unrealistic.

Gold exchange-traded funds (ETFs) continue to hold the upper hand with approximately $92.12 billion in assets under management (AUM) across 19 funds, according to data. However, Bitcoin ETFs, a recent arrival on the scene, are experiencing explosive growth.

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