Bitcoin and gold: the two assets are compared over and over again. Gold is older, Bitcoin is better. In the picture there are gold bars and BTC coins.
The growing mainstream adoption of Bitcoin (BTC) as a reserve asset is having a direct impact on gold, setting the stage for a major shift in the institutional allocation between the two assets, according to analysts at JPMorgan Chase.
Bitcoin is driving gold out of the market
Quantitative strategists, including Nikolaos Panigirtzoglou, believe that Bitcoin’s digital gold narrative will pull investors away from precious metals, possibly for the next several years, resulting in a large divergence in price between the two assets.
The bank said Bitcoin accounts for just 0.18% of the assets held by family offices, compared to 3.3% for exchange-traded gold funds. Using this data as a starting point, just a small shift from gold to BTC could create “structural headwinds” for the gold price.
In a note to customers that Bloomberg received, the strategists said:
The acceptance of Bitcoin by institutional investors has only just begun, while the acceptance of gold by institutional investors is very advanced. Should this thesis prove to be true in the medium to longer term, the gold price would suffer from structural headwinds in the coming years.
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Capital is already flowing out of gold and increasing at BTC
If you look beyond JPMorgan’s analysis, there is clear evidence that institutional adoption of Bitcoin is increasing. Grayscale has seen record inflows into its Bitcoin and Ethereum (ETH) trusts. Grayscale, Paypal and Cash App are buying up more BTC than are being “mined” every day.
CoinShares, a European digital asset manager, has also reported on the recent surge in capital inflows into Bitcoin and Co. In just four weeks, Bitcoin financial products sucked in $ 1.4 billion. Gold meanwhile saw record outflows of $ 9.2 billion.
Investors keen to join the trend can buy one unit of the Bitcoin Trust from Grayscale and sell three units of the SPDR Gold Shares Trust, the bank said.
Despite Bitcoin’s long-term value proposition, the digital asset is likely overvalued following the recent rally. The strategists point to the possibility of strong selling pressure in the short term. In the long term, enormous potential is seen.