Despite massive inflows into a spot Bitcoin exchange-traded fund recently launched in the US, it is unrealistic to expect Bitcoin to match the notional amount of gold in investors’ portfolios, according to a recent analyst report.
A report published on Thursday by a team of JPMorgan analysts led by Nikolaos Panigirtzoglou noted that risk is a critical factor often ignored in arguments that Bitcoin should match gold in investor portfolios. This argument assumes that Bitcoin’s market capitalization should rise to $3.3 trillion (the value of gold held for investment purposes), thus implying that the price of Bitcoin would more than double.
Most investors consider risk and volatility when allocating across asset classes, analysts said. Given that Bitcoin’s volatility is approximately 3.7 times higher than that of gold, they concluded that it is unrealistic to expect Bitcoin to match gold by a nominal amount within an investor’s portfolio.
Analysts have argued that assuming Bitcoin matches gold in terms of risk capital (funds earmarked for speculative activities), the implied allocation would be reduced to $0.9 trillion, which is $3.3 trillion divided by 3.7.
“This means that the price of Bitcoin is well below current levels at $45,000. That is, at $66,000 today, the implied allocation to Bitcoin within an investor’s portfolio has already surpassed the allocation to gold on a volume-adjusted basis,” the analysts said. said.
Spot Bitcoin ETFs could see inflows worth around $62 billion in the next two to three years.
Of the total gold holdings of $3.3 trillion for investment purposes, only 7%, or $230 billion, is held in fund form, with the rest in the form of bars and coins, analysts said.
Analysts noted that using gold as a benchmark and applying the same volatility ratio of 3.7, the potential Bitcoin ETF size would be approximately $62 billion (i.e. $230 billion divided by 3.7). They added that this represents a “realistic target” for the potential size of a spot Bitcoin ETF over time, perhaps within two to three years. However, most of the implied net inflows could come from ongoing cyclical movements from traditional products to ETFs, they noted.
The spot Bitcoin ETF outside the Grayscale Bitcoin Trust has already seen cumulative inflows of $19 billion since launch. That’s nearly half of the $36 billion in circular movements JPMorgan previously expected for all of 2024.
After accounting for a total of $10 billion in outflows from GBTC to date, net inflows into all spot Bitcoin ETFs amount to $9 billion, which analysts still consider a “significant” number.
However, they expressed skepticism that the entire $9 billion represents new funds entering the cryptocurrency space, as retail investors are probably switching from existing products and venues to new spot Bitcoin ETFs.
Disclaimer: The Block is an independent media outlet delivering news, research and data. As of November 2023, Foresight Ventures is a majority investor in The Block. Foresight Ventures invests in other companies in the cryptocurrency space. Cryptocurrency exchange Bitget is an anchor LP of Foresight Ventures. The Block continues to operate independently to provide objective, impactful and timely information about the cryptocurrency industry. Below are our current financial disclosures.
© 2023 The Block. All rights reserved. This article is provided for informational purposes only. It is not provided or intended to be used as legal, tax, investment, financial or other advice.