Key Points
- JPMorgan analysts suggest it's unrealistic for Bitcoin to match gold in investors' portfolios based on notional amounts.
- Despite significant inflows into new Bitcoin ETFs, the volatility of Bitcoin compared to gold makes equal allocation unlikely.
JPMorgan analysts, led by Nikolaos Panigirtzoglou, have recently stated that it would be impractical to expect Bitcoin to equal gold in terms of notional amounts in investors' portfolios. This comes in spite of the substantial inflows into newly established spot Bitcoin exchange-traded funds (ETFs) in the United States.
Considering Risk and Volatility
The analysts highlighted that the risk factor is frequently overlooked in the debate advocating for Bitcoin to match gold within investment portfolios. They pointed out that Bitcoin's market capitalization would need to escalate to $3.3 trillion, the value of gold held for investment purposes, which would mean more than a doubling of the current Bitcoin price.
The team emphasized that most investors take into account risk and volatility when distributing across asset classes. Given that the volatility of Bitcoin is approximately 3.7 times higher than that of gold, they concluded that it's unrealistic to expect Bitcoin to match gold in notional amounts within investors' portfolios.
Realistic Expectations for Bitcoin
If Bitcoin were to match gold in terms of risk capital (the funds allocated for speculative activities), the implied allocation would decrease to $0.9 trillion. This figure is derived by dividing $3.3 trillion by 3.7, suggesting a Bitcoin price of $45,000, significantly lower than current levels.
The analysts anticipate that spot Bitcoin ETFs could see around $62 billion worth of inflows within the next 2-3 years. They noted that this is a "realistic target" for the potential size of spot Bitcoin ETFs over time.
However, they expressed doubt that the entire $9 billion represents new money entering the crypto space, suggesting that retail investors are likely shifting from existing instruments and venues to new spot Bitcoin ETFs.
