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JPMorgan Throws Cold Water on Bitcoin’s Gold Match Theory

Published March 11, 2024 1:10 PM
Teuta Franjkovic
Published March 11, 2024 1:10 PM
By Teuta Franjkovic
Verified by Peter Henn

Key Takeaways

  • JPMorgan strategist argues Bitcoin can’t directly match gold allocation due to higher volatility.
  • Considering risk, Bitcoin’s market cap should be way less than now.
  • Over $60 billion in Bitcoin ETFs is possible within three years, but a price dip should happen after Bitcoin’s April halving.

JPMorgan argues that the idea of Bitcoin’s market cap reaching $3.3 trillion, matching gold’s presence in portfolios and potentially doubling its price, fails to consider the associated risks.

According to  a JPMorgan strategist, expecting Bitcoin to equate to gold in investor portfolios in terms of notional value is not realistic.

BTC vs. Gold: Allocation by Investment Advisors

The strategist emphasized  investors typically factor in risk and volatility when diversifying investments across different asset classes.

Nikolaos Panigirtzoglou, a global market strategist at JPMorgan, shared  insights into Bitcoin’s prospects within the investment landscape. To gauge the possible allocation towards Bitcoin by registered investment advisors (RIAs), Panigirtzoglou drew a comparison between Bitcoin and gold, highlighting Bitcoin’s reputation as the digital counterpart of gold.

Within the extensive $235 trillion market encompassing traditional and alternative asset classes (excluding bank and foreign exchange reserves), Panigirtzoglou pointed out that investment-grade gold represents approximately $3.3 trillion. This figure translates to a gold allocation of about 1.4%.

Interestingly, he noted that only 7% of this gold, equating to $230 billion, is invested through funds. Primarily, he said, they were in  physical gold exchange-traded funds (ETFs). The majority of gold investments come in the form of bars and coins, according to Panigirtzoglou’s observations.

He said :

“One could argue that if Bitcoin matches gold in investors’ portfolios, its market cap should rise to $3.3 trillion from $1.3 trillion currently, implying more than doubling in price. However, this calculation misses an important factor which is risk.”

Unrealistic Bitcoin and Gold Portfolio Parity Due to High Volatility

Nikolaos Panigirtzoglou, a strategist at JPMorgan, emphasized the importance of considering risk and volatility when diversifying investments across various asset classes. He noted that Bitcoin’s volatility was approximately 3.7 times higher than that of gold, making it expecting Bitcoin to occupy a similar position as gold in investors’ portfolios in terms of notional values unrealistic.

Panigirtzoglou elaborated further. He said equating Bitcoin with gold in terms of risk capital would significantly adjust the implied allocation. This, he said, would move to about $0.9 trillion from $3.3 trillion. This shows a more tempered perspective on Bitcoin’s potential market capitalization.

He explained :

“This implies a bitcoin price of $45,000, significantly lower from current levels. In other words, with the bitcoin price at $68,000 currently, the implied allocation to bitcoin within investors’ portfolios has already surpassed that of gold in volatility adjusted terms.”

Bitcoin ETFs: $62 Billion Hope, But Halving Dip Warning from JPMorgan

Panigirtzoglou has provided insights  into the future composition of Bitcoin investments, particularly in ETFs. Drawing parallels with gold, where approximately $230 billion is invested through ETFs, and applying the volatility ratio, Panigirtzoglou claims Bitcoin ETFs could realistically reach about $62 billion.

He believes Bitcoin ETFs could reach this target in somewhere between two and three years. This suggests much of the inflow into Bitcoin ETFs might come from a shift from existing investment instruments and platforms.

Additionally, JPMorgan recently issued a caution regarding Bitcoin’s price trajectory. The bank predicted a drop to $42,000 following the April halving event. According to Panigirtzoglou, current market prices reflect both the halving and the significant upcoming Ethereum upgrade. As a result, this suggests they will have a limited impact on future price movements.

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