JPMorgan Analysts: Unrealistic Expectations for Bitcoin to Match Gold in Portfolios, Spot ETFs Target $62 Billion Inflows

JPMorgan Analysts: Unrealistic Expectations for Bitcoin to Match Gold in Portfolios, Spot ETFs Target $62 Billion Inflows

Crypto News – In a recent report by JPMorgan analysts, led by Nikolaos Panigirtzoglou, it’s argued that despite substantial inflows into newly-launched spot bitcoin exchange-traded funds (ETFs) in the U.S., expecting bitcoin to match gold within investors’ portfolios is unrealistic.

The report, released on Thursday, highlights risk as a critical factor often overlooked in the comparison between bitcoin and gold. Advocates for bitcoin’s parity with gold argue that bitcoin’s market capitalization would need to reach $3.3 trillion, equivalent to the value of gold held for investment purposes, implying that bitcoin’s price would need to more than double.

However, the analysts emphasize that most investors consider risk and volatility when allocating across asset classes. Given that bitcoin’s volatility is approximately 3.7 times higher than that of gold, they conclude that expecting bitcoin to match gold in notional amounts within portfolios is unrealistic.

The analysts further argue that if bitcoin were to match gold in terms of risk capital, the implied allocation would shrink to $0.9 trillion. This figure is derived by dividing $3.3 trillion by 3.7, indicating a bitcoin price of $45,000 – significantly lower than current levels. At its current price of $66,000, the analysts note that the implied allocation to bitcoin within portfolios has already surpassed that of gold in volatility-adjusted terms.

Looking ahead, the report suggests that spot bitcoin ETFs could see inflows of around $62 billion within the next 2-3 years. Of the $3.3 trillion total amount of gold held for investment purposes, only 7%, or $230 billion, is held in fund format, with the majority in bars and coins.

Using gold as a benchmark and applying the same volatility ratio of 3.7, the analysts project a potential bitcoin ETF size of approximately $62 billion. They consider this a realistic target for the size of spot bitcoin ETFs over time, possibly within a period of two to three years. However, they caution that much of the implied net inflow could result from a continued rotational shift from existing instruments to ETFs.

Spot bitcoin ETFs, excluding Grayscale Bitcoin Trust, have already seen cumulative inflows of $19 billion since their launch, nearly half of the anticipated $36 billion rotational shift JPMorgan previously forecasted for 2024.

After factoring in the total $10 billion outflow from GBTC to date, the net inflow into overall spot bitcoin ETFs stands at $9 billion, which the analysts still deem significant. However, they express skepticism that the entire $9 billion represents new money entering the crypto space, suggesting that retail investors may be shifting from existing instruments and venues to new spot bitcoin ETFs.