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J.P. Morgan believes Bitcoin spot ETFs likely won’t see much AUM growth in the long term based on valuations of the asset next to gold.
Analysts led by Nikolaos Panigirtzoglou wrote that Bitcoin ETFs, when assessed as a substitute for gold and adjusted for volatility, have an implied “realistic size” of $62 billion over the next two to three years.
JPMorgan Bearish On Bitcoin
That’s a less optimistic target than what more bullish crypto analysts project for the ETFs, which have already absorbed $9.3 billion of net flows since their launch 2 months ago. Combined with Bitcoin’s price appreciation since that time, ETFs including Grayscale have seen their AUM rise from $30 billion to over $50 billion.
According to JPMorgan, bulls are not accounting for the risk associated with Bitcoin, and thus vastly overestimating the share of investors’ portfolios that it will comprise. They bank wrote:
“Most investors take risk and volatility into account when they allocate across asset classes and given the volatility in bitcoin is around 3.7 times the volatility of gold it would be unrealistic to expect bitcoin to match gold within investors’ portfolios in notional amounts.”
Dividing the amount of gold currently held by investors ($3.3 trillion) by the Bitcoin’s volatility against gold (3.7), provides a figure of $900 billion in total Bitcoin allocation to investors. This implies a price per coin of $45,000 – far below Bitcoin’s current market price of $69,000.
The bank arrived at its $62 billion figure for Bitcoin ETFs by accounting for all gold held by funds, which equals $230 million, and dividing it by the 3.7 volatility multiple. Many of those funds, however, may have come from a rotational shift out of other Bitcoin-based investment vehicles and into the ETFs.
Bitcoin VS Gold
Gold ETFs in the United States roughly hold $92 trillion in assets, according to VettaFi. Their Bitcoin counterparts are the next largest commodity ETFs in the country.
Bitcoin and gold are often compared for their similar properties as investment vehicles. Neither has any intrinsic cash flows, but both are difficult to produce more of, and thus make for strong hedges against inflation.
Larry Fink, CEO of BlackRock, has often described Bitcoin as “digital gold” when discussing Bitcoin ETFs, and referred to investors’ appetite for the asset as a “flight to quality.”