In a recent research report, JPMorgan (JPM) has projected that if Bitcoin (BTC) were to match gold’s allocation in investor portfolios, its market capitalization would need to rise to $3.3 trillion.
This would imply a more than doubling of its price. However, the financial institution highlighted that such a scenario is unlikely due to Bitcoin’s inherent risk and heightened volatility compared to gold.
Bitcoin vs. gold: A comparison
JPMorgan emphasized that gold is the most suitable comparison for Bitcoin, considering the perception among investors of Bitcoin as a digital equivalent of the precious metal. Analysts led by Nikolaos Panigirtzoglou explained that while some investors may view Bitcoin as a potential alternative to gold, its significantly higher volatility must be considered when considering portfolio allocations.
The report pointed out that Bitcoin’s volatility is approximately 3.7 times higher than that of gold. Consequently, expecting Bitcoin to match gold within investors’ portfolios in notional amounts would be unrealistic. JPMorgan suggested that if Bitcoin were to match gold in “risk capital terms,” the implied allocation would drop to $0.9 trillion, indicating a potential price of $45,000. This is notably lower than Bitcoin’s current price of around $67,400.
Implications for the Bitcoin ETF market
Furthermore, JPMorgan analyzed the potential implications for the Bitcoin exchange-traded fund (ETF) market. The bank estimated that applying the volatility ratio 3.7 could imply a market size of approximately $62 billion for Bitcoin ETFs. The net inflow into spot Bitcoin ETFs is about $9 billion, some of which might represent a rotational shift from existing investment products.
The report suggested that $62 billion is a realistic target for the potential size of spot Bitcoin ETFs over the next two to three years. However, it cautioned that much of the implied net inflow could stem from a continued rotational shift from existing instruments and venues to ETFs. Despite this, JPMorgan remains optimistic about the growth prospects of Bitcoin ETFs, albeit with a cautious outlook.
