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Bitcoin's rivalry with gold plus millennial curiosity affords “appreciable” upside potential: JPMorgan

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Bitcoin has proven to be a risk asset rather than a safe haven with "significant" upside potential, according to a release received from CoinDesk by JPMorgan's Global Quantitative and Derivatives Strategy team.

In a letter to customers in "Flows & Liquidity", one of JPMorgan's key publications, the authors said that due to the increasing positive correlation of the leading cryptocurrency with the "leading" cryptocurrency, it was "more appropriate" to use Bitcoin as "risk" Investments and not to be characterized as “safe” investments Standard & Poor's 500 Index since March.

Bitcoin's function as a risk-weighted asset "is likely to reflect the need for an" alternative "currency rather than the need for a" safe "asset or" hedge "."

"This also applies to gold to a certain extent," the authors add, although the volatility of the yellow metal is significantly lower than that of Bitcoin.

As investors currently perceive the value of Bitcoin, this implies that it could compete "more intensely" with gold as an "alternative" currency in the coming years, according to the analysts. Bitcoin's role as a gold competitor is compounded by millennial investors' interest in cryptocurrency and the inevitability of younger investor demographics, which over time will become a more important part of the investor universe, according to the note.

Bitcoin's market capitalization would need to be increased by a factor of 10 before it could match the total private sector investment in gold, according to the author. “Even a modest displacement of gold as an alternative currency in the longer term would double or triple the price of Bitcoin from here. "

"In other words, the potential long-term uptrend for Bitcoin is substantial."

Beyond the interest of millennial investors, the note highlights the importance of corporate and legacy investor interest, which makes Bitcoin credible as an investment vehicle. In particular, PayPal's announcement on Wednesday that it would support Bitcoin and alternative cryptocurrencies (Altcoins) is "another big step towards corporate support for Bitcoin".

The authors also identify “strong growth” in institutional investor interest in Bitcoin, as indicated by activity in the CME futures and options markets. As of Thursday, for example, the CME Bitcoin futures markets quietly became the second largest and overtaken BitMEX and Binance, two dominant pure crypto trading platforms, according to Open Interest.

The utility as a store of value is not the only catalyst for potential upward movement, however. According to the authors, the price of Bitcoin and Altcoins could go up significantly when used as a means of payment. "The more economic players will accept cryptocurrency as a means of payment in the future, the greater its usefulness and value," the note says.

Ultimately, although Bitcoin "looks overbought in the short term", the authors reiterate that the potential long-term upward trend for Bitcoin is "substantial".

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Melinda Martin