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Speculators And Retails Are Driving Latest Bitcoin Rally, Says JPMorgan

JPMorgan analysts maintain a pessimistic outlook on the short-term trajectory of Bitcoin, suggesting that the current surge in the asset’s value is primarily driven by retail investors and speculative institutions. According to the bank, both of these demographics, as of March 14, have entered the market alongside momentum traders such as commodity trading advisors, investing funds in both gold and Bitcoin futures.

JPMorgan’s Bitcoin Analysis

The bank’s analysis contradicts theories linking the remarkable success of Bitcoin spot ETFs to the outflows from gold ETFs, suggesting instead that investors are reallocating funds from gold to Bitcoin. Since the beginning of the year, over $5 billion has moved out of gold ETFs, while nearly $12 billion has poured into Bitcoin ETFs.

The analysts, led by Nikolaos Panigirtzoglou, explained in their report that this trend of outflows from gold ETFs does not signal a disinterest in gold among private investors like individuals and family offices. Rather, it indicates a shift away from investing in physical gold ETFs towards purchasing bars and coins directly.

Bitcoin and gold are frequently compared due to their similar investment theses: both are finite commodities and potential safeguards against inflation or economic crises. Bitcoin proponents often highlight Bitcoin’s advantages over gold in terms of scarcity and portability, speculating that a day will come when Bitcoin supersedes gold in value.

However, the analysts at the bank contend that buyers of gold ETFs are seeking refuge in physical gold for security reasons.

“Privacy and tangibility have become increasingly significant factors for private investors since the onset of the pandemic, and physical gold offers advantages in these regards compared to holding gold through ETFs,” they noted.

Furthermore, the bank pointed out that actual gold has witnessed greater demand than gold ETFs since the pandemic began, surpassing even the gold acquisitions made by central banks.

What Are The Real ETF Inflows?

JPMorgan suggests that while Bitcoin ETFs have seen remarkable success, they are witnessing the opposite trend compared to gold. Rather than investors moving from gold to ETFs, holders of actual Bitcoin on cryptocurrency exchanges are reportedly selling their holdings to invest in the ETFs.

This hypothesis is supported by data indicating approximately $7 billion in outflows from crypto exchanges since the launch of the ETFs. Analysts argue that the net inflow from retail investors into these newly established ETFs is more likely around $2 billion.

Despite companies like MicroStrategy (MSTR) continuing to raise funds to purchase Bitcoin, JPMorgan warns that this activity might be exacerbating the already fervent market sentiment, potentially leading to a significant correction in the near future.

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