Bitcoin Is Unlikely to Match Gold’s Allocation in Investors’ Portfolios in Nominal Terms: JPMorgan

If bitcoin (BTC) were to match gold’s allocation in investor portfolios, its market cap should rise to $3.3 trillion, implying a more than doubling of its price, but that probably won't happen because of the cryptocurrency's risk and heightened volatility, JPMorgan (JPM) said in a research report.

Gold is the best comparison for the cryptocurrency given investor perception of bitcoin as a digital version of the metal, the report said.

“Most investors take risk and volatility into account when they allocate across asset classes and given the volatility in bitcoin is around 3.7 times the volatility of gold it would be unrealistic to expect bitcoin to match gold within investors’ portfolios in notional amounts,” analysts led by Nikolaos Panigirtzoglou wrote.

JPMorgan said that if bitcoin were to match gold in “risk capital terms” the implied allocation drops to $0.9 trillion, implying a price of $45,000, notably lower than its current level of around $67,400.

“At $66K currently, the implied allocation to bitcoin within investor’s portfolios has already surpassed that of gold in volatility adjusted terms,” the authors wrote on Thursday.

Applying the volatility ratio of 3.7 to estimate the potential magnitude of the bitcoin ETF market implies a size of around $62 billion, the bank said. Net inflow into spot bitcoin ETFs is about $9 billion, some of which could have been a rotational shift from existing products.

“This is a realistic target of the potential size of spot bitcoin ETFs over time perhaps within a time period of two to three years, though much of the implied net inflow could represent a continued rotational shift from existing instruments and venues to ETFs,” the report added.