Bitcoin Unlikely to Match Gold in Investors’ Portfolios, Says JPMorgan Analyst Report
Despite the popularity of spot bitcoin exchange-traded funds (ETFs) in the U.S., a recent report by JPMorgan analysts led by Nikolaos Panigirtzoglou suggests that it would be unrealistic to expect bitcoin to reach the same level as gold within investors’ portfolios. The report highlights the importance of considering risk and volatility when allocating investments across asset classes. Given that bitcoin’s volatility is approximately 3.7 times higher than that of gold, the analysts conclude that expecting bitcoin to match gold in notional amounts would be unrealistic.
The Argument for Bitcoin Matching Gold in Investors’ Portfolios
Some proponents argue that bitcoin should match gold in terms of its market capitalization, which currently stands at $3.3 trillion for gold held for investment purposes. This would imply that bitcoin’s price needs to more than double. However, the JPMorgan analysts contend that this argument overlooks the crucial factor of risk.
Risk and Volatility Considerations
The JPMorgan analysts emphasize that investors typically consider risk and volatility when allocating their funds across different asset classes. In this regard, they note the following:
- Bitcoin’s volatility is approximately 3.7 times higher than that of gold.
- If bitcoin were assumed to match gold in terms of risk capital (funds designated for speculative activities), the implied allocation would shrink to $0.9 trillion, derived by dividing $3.3 trillion by 3.7.
- This implies a bitcoin price of $45,000, significantly lower than its current level of $66,000.
Potential Inflows into Spot Bitcoin ETFs
While it may be unrealistic to expect bitcoin to match gold in investors’ portfolios, the JPMorgan analysts suggest that spot bitcoin ETFs could still attract significant inflows. They note the following:
- Out of the total $3.3 trillion of gold held for investment purposes, only 7% or $230 billion is held in fund format.
- Applying the same volatility ratio of 3.7, a potential size of approximately $62 billion for spot bitcoin ETFs is suggested ($230 billion divided by 3.7).
- This represents a “realistic target” for the potential size of spot bitcoin ETFs over time, possibly within two to three years.
- However, a significant portion of the implied net inflow may come from a rotational shift from existing instruments to ETFs.
Current Inflows into Spot Bitcoin ETFs
The JPMorgan analysts highlight the cumulative inflow of $19 billion into spot bitcoin ETFs outside of Grayscale Bitcoin Trust since their launch. This accounts for nearly half of the anticipated $36 billion rotational shift by JPMorgan throughout 2024. However, they express skepticism that the entire $9 billion net inflow represents new money entering the crypto space, as retail investors are likely shifting from existing instruments and venues to new spot bitcoin ETFs.
Hot Take: Bitcoin’s Place in Investors’ Portfolios
The JPMorgan analyst report challenges the notion that bitcoin should match gold in investors’ portfolios and emphasizes the importance of considering risk and volatility when making investment decisions. While it may be unrealistic for bitcoin to reach gold’s notional amounts, there is still potential for significant inflows into spot bitcoin ETFs. The report suggests a target size of around $62 billion for these ETFs within the next two to three years. However, it remains to be seen whether this inflow represents new money entering the crypto space or a shift from existing instruments and venues.
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