JPMorgan, a leading global financial services firm, recently made a statement that has stirred up the cryptocurrency market. The firm stated that it would be “unrealistic” to expect Bitcoin to match gold in terms of notional amounts in investors’ portfolios
Bitcoin vs. Gold: A Comparison
JPMorgan’s global market strategist, Nikolaos Panigirtzoglou, compared Bitcoin to gold, stating that the most similar asset to compare is gold given the perception of Bitcoin as a digital version of gold. He noted that the amount of gold held for investment purposes is around $3.3 trillion, implying an allocation to gold of around 1.4%.
The Risk Factor – JPMorgan
However, Panigirtzoglou stressed that most investors consider risk and volatility when they allocate across asset classes. Given that the volatility of Bitcoin is around 3.7 times the volatility of gold, it would be unrealistic to expect Bitcoin to match gold within investors’ portfolios in notional amounts
If Bitcoin were to match gold in risk capital terms, the implied allocation would fall to $0.9 trillion, implying a Bitcoin price of $45,000, significantly lower than current levels. With the Bitcoin price at $68k currently, the implied allocation to Bitcoin within investors’ portfolios has already surpassed that of gold in volatility-adjusted terms
The Future of Bitcoin ETFs
Panigirtzoglou also shared his analysis of how much Bitcoin would eventually be held in ETF format1. Around $230 billion of gold held for investment purposes is in ETF format. Applying the same volatility ratio 3.7 implies a Bitcoin ETF size of around $62 billion. This is a realistic target of the potential size of spot Bitcoin ETFs over time, perhaps within a period of two to three years
Conclusion
JPMorgan’s analysis provides a sobering perspective on the future of Bitcoin. While cryptocurrency has seen significant growth and adoption, investors need to consider the inherent risks and volatility associated with this asset class. As always, investors should conduct their research and consult with a financial advisor before making investment decisions.
Disclaimer: This blog post is for informational purposes only and should not be taken as financial advice. Always conduct your research or consult with a financial advisor before making investment decisions
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