JP Morgan weighs in on the Gold vs. Bitcoin debate

The growing adoption of Bitcoin (BTC) by institutional investors directly affects another very popular asset, gold. According to JPMorgan Chase, investors may reallocate money to Bitcoin in the coming years.

Gold and Bitcoin regularly find themselves back-to-back. Comparisons are also recurring. The queen of cryptocurrencies often inherits the term digital gold or gold 2.0. These statements do not leave institutional investors insensitive.

For JPMorgan Chase analysts, this could lead to significant changes in investors’ portfolios. Over the next few years, gold may even fall victim to Bitcoin’s success.

“The adoption of Bitcoin by institutional investors is just beginning, while for gold, its adoption by institutional investors is well advanced. If this thesis proves to be correct in the medium and long term, the price of gold will suffer from a structural headwind in the years to come,” warns the bank in a note.

For the time being, gold is still largely crushing Bitcoin. Among the family offices, cryptocurrencies represent only 0.18% of assets. For exchange-traded gold funds, this share reaches 3.3%. However, it could be at risk.

However, this forecast does not concern the short term. According to the bank, the signs in favor of an increase in the price of Bitcoin are worsening. Gold, on the other hand, is expected to recover, according to its analysts.

As far as institutional investors are concerned, exposure to Bitcoin is likely to take place through ETFs. The Grayscale Bitcoin Trust (GBTC) is expected to grow strongly in 2020. It holds more than 500,000 Bitcoins.

Michael Sonnenshein, Chief Operating Officer of Grayscale Investments, is a proponent of Bitcoin’s vision of digital gold.

“I think they [institutional investors] now understand that buying Bitcoin and storing it in their portfolios is a way to store value, protected against inflation, much like a digital gold (…) much better suited to the digital world we live in,” he said recently.

The very high volatility of the last few weeks could nevertheless be an obstacle for many investors. Bitcoin outperforms gold and the S&P 500 Index over 3 years, notes Wells Fargo. This advantage of Bitcoin is recent, however.

“Until just two months ago, three-year total returns were about the same for all three assets, only the volatility differed,” warns the bank.