Bitcoin is gaining mainstream acceptance as a reserve asset. In that connection, it is having some significant direct impact on gold, setting the stage for a huge shift in institutional allocation between these two popular assets. JPMorgan Chase says that gold might languish for years as bitcoin’s popularity grows.
Quantitative strategists like Nikolaos Panigirtzoglou think that BTC’s digital gold narrative will push investors away from the precious metals, maybe for years to come; that may result in a major divergence in price between the two assets.
The bank stated that bitcoin accounts for just 0.18% of assets that are held at family offices in comparison to 3.3% for the gold exchange-traded funds. By utilizing this data as a starting point, just a small reallocation from gold to bitcoin could result in ‘structural headwinds’ for bullion’s price.
In a note published by Bloomberg, these bank strategists said:
“The adoption of bitcoin by institutional investors has only begun, while for gold, its adoption by institutional investors is very advanced. If this medium to longer-term thesis proves right, the price of gold would suffer from a structural headwind over the coming years.”
Institutional Investors Shunning Gold For Bitcoin
Looking past JPMorgan’s analysis, there is some tangible evidence indicating that institutional investor uptake of bitcoin is rising. On its part, the Grayscale digital-asset manager has recorded massive inflows into its Ethereum and Bitcoin trusts. PayPal, Grayscale, and Square’s CashApp are purchasing more bitcoin than is being mined daily.
Data aggregator CoinShares has also publicly published the recent surge in cryptocurrency capital inflows on its platform. Over just four weeks, bitcoin products sucked in around $1.4 billion. In the meantime, gold recorded record outflows of a staggering $9.2 billion.
Investors who want to trade this trend can buy one unit of Grayscale’s Bitcoin Trust and sell three units of the SPDR Gold Shares Trust, JPMorgan said. Despite bitcoin’s long-term value projection, the digital asset might likely be overextended after the latest rally. In this context, the strategists cite the probability of strong selling pressure in the short term.
On December 9, 2021, bitcoin’s price shortly dropped below $18,000 and lost over 7% at the lowest point.