JPMorgan says its long-term bitcoin price target of $150,000 is unlikely as surging volatility challenges institutional adoption
- The boom-and-bust nature of bitcoin will hinder institutional adoption, according to JPMorgan.
- The bank said the recent decline in bitcoin makes its longer-term $150,000 target less likely.
- "Our fair value for bitcoin based on a volatility ratio of bitcoin to gold of around 4x would be 1/4th of $150k or $38k," JPMorgan said.
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Bitcoin's more than 50% drawdown from a record November price of $69,000 highlights the boom-and-bust nature of the cryptocurrency, and that type of volatility will hinder further adoption by institutions, JPMorgan said in a Wednesday note.
The bank lowered its long-term theoretical bitcoin price target of $150,000 to $38,000, which is based on the relative volatility and market size between gold and bitcoin.
"Our previous projection that the bitcoin to gold volatility ratio will fall to around 2x later this year seems unrealistic. Our fair value for bitcoin based on a volatility ratio of bitcoin to gold of around 4x would be 1/4th of $150,000, or $38,000," JPMorgan said. Bitcoin currently trades around $37,000.
JPMorgan's prior $150,000 target assumed a convergence of bitcoin volatility to that of gold, and an equalization of bitcoin allocations to that of gold in investor portfolios. Now, that is unlikely in the foreseeable future, JPMorgan said.
Institutions have been slowly warming up to bitcoin because of its uncorrelated returns to equities and other asset classes. But that notion has been challenged in recent sell-offs that occurred in tandem with equity market declines.
"The biggest challenge for bitcoin going forward is its volatility and the boom and bust cycles that hinder further institutional adoption," JPMorgan said.
JPMorgan also said it has not yet observed signs of capitulation in the ongoing sell-off, suggesting more downside ahead for bitcoin.
"The open interest across futures contracts and the amount of bitcoin or ether held on exchanges, are pointing to less panicky or abrupt unwinding of positions than last May in particular with respect to larger crypto investors. In turn this implies that this month's corrections looks less like capitulation relative to last May," JPMorgan said.