JPMorgan Chase & Co. sees Bitcoin as a future competitor of gold as an asset class, with the long-term potential to reach $146,000, Bloomberg reports.
Why It Matters: It would be quite the climb for Bitcoin, which rallied to a record $34,000 before retreating a bit on Monday. But it’s a long way off, if anything. Private investment in Bitcoin would have to grow at a multiple of nearly five to match the investment in gold via ETFs or bars and coins.
But a healthy future for Bitcoin depends on its volatility coming down to gold’s level, encouraging more institutional investment.
- A group of strategists led by Nikolaos Panigirtzoglou said this could be a “multiyear process.”
Key Numbers (From CoinMarketCap):
- Bitcoin’s Market Capitalization: $592 Billion
- Bitcoin’s Circulating Supply: 18,600,000 Tokens
- Bitcoin’s Current Price (9:00 a.m. ET): $31,701.10
As prices continue to improve and volatility appears to stabilize, more institutions and noted investors are getting involved or expressing interest. But a heated debate over Bitcoin remains:
- “While some argue that the cryptocurrency offers a hedge against dollar weakness and inflation risk in a world awash with fiscal and monetary stimulus, others say retail investors and trend-following quant funds are pumping up an unsustainable bubble.”
The Future, For Now: JPMorgan anticipates headwinds for the digital currency, with indicators “like a buildup of speculative long positions and an increase in investment wallets holding small amounts of Bitcoin showing potential froth.”
Bitcoin rose 1.7% to $31,567 as of 10:31 a.m. in London. The wider Bloomberg Galaxy Crypto Index added 0.9%. On Monday, Bitcoin slid as much as 17%, the biggest drop since March, after breaching $34,000 for the first time over the weekend. The swings are a reminder of the famed volatility of the largest cryptocurrency, whose price has more than quadrupled over the past year.
Bitcoin has the potential to reach $146,000 in the long term as it competes with gold as an asset class, according to JPMorgan Chase & Co. Bitcoin’s market capitalization of around $575 billion would have to rise by 4.6 times — for a theoretical price of $146,000 — to match the total private sector investment in gold via exchange-traded funds or bars and coins, strategists led by Nikolaos Panigirtzoglou wrote in a note. But that outlook depends on the volatility of Bitcoin converging with that of gold to encourage more institutional investment, a process that will take some time, they said.
“A crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term,” the strategists wrote Monday. However, “a convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is in our mind a multiyear process, according to Bloomberg. This implies that the above-$146,000 theoretical Bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year.”
More institutions and noted investors, from Paul Tudor Jones to Scott Minerd and Stan Druckenmiller, have either started allocating funds into Bitcoin or have said they’re open to doing so. While some argue that the cryptocurrency offers a hedge against dollar weakness and inflation risk in a world awash with fiscal and monetary stimulus, others say retail investors and trend-following quant funds are pumping up an unsustainable bubble.
For now, JPMorgan sees headwinds for the largest cryptocurrency, with indicators like a buildup of speculative long positions and an increase in investment wallets holding small amounts of Bitcoin showing potential froth. “The valuation and position backdrop has become a lot more challenging for Bitcoin at the beginning of the New Year,” the strategists wrote. “While we cannot exclude the possibility that the current speculative mania will propagate further pushing the Bitcoin price up toward the consensus region of between $50,000-$100,000, we believe that such price levels would prove unsustainable.”
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