The cryptocurrency Bitcoin is becoming more and more mainstream. The rise of the cyber currency in the traditional financial market, however, heralds difficult times for another previously popular investment product, believes the US investment bank JPMorgan.
• Fund inflows into crypto funds increase while capital flows out of gold investments
• JPMorgan: Institutional investors are just beginning to adopt Bitcoin
• Gold price will face structural headwinds in the next few years
A trend reversal can be seen on the financial markets in the middle of the ongoing Corona crisis: More and more investors are putting their money in crypto trading bot like BitcoinEra.eu and are turning their backs on the former safe haven of gold. The news agency “Reuters” reports, citing data from the asset manager CoinShares. According to this, 429 million US dollars flowed into crypto trading bot funds in the first week of December alone. That was the second highest ever figure, according to CoinShares, after a new record was only set in November with an inflow of $ 468 million in just one week. In the four weeks up to December 7th, a total of 1.4 billion US dollars flowed into Bitcoin investment products alone – while 9.2 billion US dollars were withdrawn from gold investments in the same time.
The US investment bank JPMorgan also sees this trend away from gold and towards Bitcoin.
According to their observations, there have been increasing outflows of funds from gold and new investments in Bitcoin since October. In a study published by Bloomberg, the bank writes that the Grayscale Bitcoin Trust alone has received almost two billion US dollars since October. On the other hand, around seven billion US dollars were drained from gold ETFs in the same period. The reason for this trend, according to the JPMorgan strategists, is the increasing acceptance of cryptocurrencies among institutional investors, who would now gradually shift their positions – at the expense of the yellow precious metal.
JPMorgan sees the beginning of a long-term trend
“The acceptance of Bitcoin by institutional investors has only just begun, while the acceptance of gold by institutional investors is already very advanced,” says the study by the team led by JPMorgan strategist Nikolaos Panigirtzoglou according to “Bloomberg”. According to the experts, this means that more and more financial market professionals will now build up positions in Bitcoin and Co. Since cryptocurrencies like Bitcoin are still quite new, they should benefit significantly from this increasing acceptance.
James Butterfill, investment strategist at CoinShares, made a similar statement to “Reuters”. “Based on the high level of interest, it can be assumed that we are only at the beginning of the institutional acceptance [of cryptos] and not that this has already flattened out again,” he told the news agency.
What should be good news for all crypto fans could turn out to be a problem for precious metal bulls, according to JPMorgan. Because even if investors shift only a small proportion of their positions from precious metals to cryptos, there could be a major change on the gold and crypto market, according to the investment bank, according to “Bloomberg”.
Nikolaos Panigirtzoglou’s team looked at family office investments as an example. As JPMorgan writes according to “Bloomberg”, these companies, which manage the large private assets of the respective owner family, currently only hold 0.18 percent of the fixed assets in Bitcoin, but 3.3 percent of the assets in gold ETFs. Should cryptos like Bitcoin gradually gain in importance, that would mean that billions of US dollars would be moved in this area alone.
Experts see years of headwinds for gold
If JPMorgan’s medium to long-term thesis proves to be correct that more and more institutional investors are switching at least part of their assets from gold to Bitcoin, then “the gold price would suffer from structural headwinds over the coming years,” it says in the Study. According to “Bloomberg”, the JPMorgen experts recommend investors who share this opinion to buy one unit from the Grayscale Trust and sell three units from the SPDR Gold Trust.
The US investment bank is not the only analysis company that assumes that Bitcoin and Co. will gradually overtake the yellow precious metal. The experts at Deutsche Bank also reported that there was increasing demand from investors to use Bitcoin instead of gold as a hedging instrument. Rick Rieder, CIO of the investment company BlackRock, was also certain that Bitcoin would one day replace gold.
There is a lot to be said for the cyber motto, especially in the long term. Because as “Business Insider” reports, JPMorgan expects – in addition to the increasing acceptance of Bitcoin – an increase in the intrinsic value of the cryptocoin. According to the models of the US bank, this is currently at 11,000 to 12,000 US dollars and thus well below the current stock exchange price. When the gap between intrinsic value and actual price was already so large in the past, mining subsequently became more difficult and expensive, which, according to the experts, drove the intrinsic value of Bitcoin up. This development has not yet been observed, but according to the experts it should be imminent.