J.P. Morgan’s analysis suggests that Bitcoin spot ETFs may not experience significant growth in assets under management (AUM) over the long term, especially when compared to the valuation of gold. According to analysts, led by Nikolaos Panigirtzoglou, when Bitcoin ETFs are considered as an alternative to gold and adjusted for volatility, they indicate a more realistic size of around $62 billion within the next two to three years.
JPMorgan Bearish On Bitcoin
This target is less optimistic compared to the projections of more bullish crypto analysts for ETFs. These ETFs have already attracted $9.3 billion in net flows since their launch two months ago. Coupled with Bitcoin’s price appreciation during this period, ETFs like Grayscale have witnessed their AUM surge from $30 billion to over $50 billion.
However, according to JPMorgan, bullish forecasts fail to consider the risks associated with Bitcoin, leading to a significant overestimation of its share in investors’ portfolios. The bank pointed out:
“Most investors factor in risk and volatility when allocating across asset classes, and given that Bitcoin’s volatility is approximately 3.7 times that of gold, expecting Bitcoin to match gold within investors’ portfolios in notional amounts would be unrealistic.”
By dividing the current gold holdings by investors ($3.3 trillion) by Bitcoin’s volatility against gold (3.7), a total Bitcoin allocation to investors of $900 billion is obtained. This suggests a price per coin of $45,000, significantly below Bitcoin’s current market price of $69,000.
JPMorgan arrived at its $62 billion estimate for Bitcoin ETFs by considering all gold held by funds, amounting to $230 million, and dividing it by the volatility multiple of 3.7. However, many of these funds might have originated from a rotational shift out of other Bitcoin-based investment vehicles and into the ETFs.
Bitcoin VS Gold
Gold ETFs in the United States reportedly hold approximately $92 trillion in assets, according to VettaFi. Among commodity ETFs in the country, their Bitcoin equivalents rank as the next largest.
Bitcoin and gold are frequently likened for their analogous characteristics as investment instruments. Neither possesses intrinsic cash flows, yet both are challenging to produce in abundance, rendering them robust hedges against inflation.
Larry Fink, CEO of BlackRock, has frequently labeled Bitcoin as “digital gold” in conversations about Bitcoin ETFs, citing investors’ keen interest in the asset as a “flight to quality.”
