Bitcoin's intrinsic value will rise in the coming months while gold may struggle as institutional investors flock to crypto, JPMorgan says
- JPMorgan strategists said on Tuesday that gold will suffer in the long-term as more institutional investors adopt bitcoin.
- The strategists noted that in the last two months, digital asset manager Grayscale's bitcoin trust saw an inflow of nearly $2 billion, while gold ETFs saw outflows of over $7 billion.
- JPMorgan also said bitcoin's intrinsic value will rise significantly over the coming months as mining activity improves.
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Institutional investors flocking to bitcoin could put downward pressure on gold in the longer-term, according to a group of JPMorgan strategists led by Nikolaos Panigirtzoglou.
In a Tuesday note, they said that bitcoin's near-term price is "skewed to the downside," while gold looks more positive. However, they see the medium- to longer-term trending in the opposite direction.
"The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced," JPMorgan said. "If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years."
The strategists noted that in the last two months, digital asset manager Grayscale's bitcoin trust saw an inflow of nearly $2 billion, while gold ETFs saw outflows of over $7 billion.
But institutional investors including high net-worth family offices still generally hold larger percentages of their assets in gold than bitcoin, JPMorgan noted. Gold is traditionally viewed as "safe-haven" asset," while bitcoin is fairly new and will benefit from increased institutional adoption.
The strategists also said bitcoin's intrinsic value will rise significantly over the coming months as mining activity improves. According to JPMorgan's models, bitcoin's intrinsic value is currently around $11k-$12k. This is compared with its current market price of roughly $18,200.
Previously when the gap between the intrinsic value and market price was that wide, mining activity would pick up and become more difficult and costly, the strategists said. This hasn't occurred this time around, in part because of "disruptions to mining activity from interruptions to power supply due to China related typhoons and heavy rainfall," they said.
As conditions normalize, a pickup in mining activity will likely see an increase in the intrinsic value, they added.
"We estimate that a 70% increase in difficulty, all else equal, would see the intrinsic value approach current market prices," the strategists wrote. "While this is a large increase, increases of a similar order of magnitude did occur in the late 2017 and mid-2019 episodes. This means we think it is likely that a larger share of the eventual closing of the gap between market prices and cost of production could come from the latter than in the two previous episodes. "