JPMorgan says the argument that bitcoin’s market cap would rise to $3.3 trillion if it matched gold in portfolios, implying more than doubling in price, overlooks risk. “It would be unrealistic to expect bitcoin to match gold within investors’ portfolios in notional amounts,” a JPMorgan strategist stressed, adding: “Most investors take risk and volatility into account when they allocate across asset classes.”
JPMorgan’s Bitcoin Analysis
JPMorgan’s global market strategist Nikolaos Panigirtzoglou discussed bitcoin’s future in a post on Linkedin on Friday. To estimate how much bitcoin registered investment advisors (RIAs) might allocate, the strategist compared the crypto to gold, stating: “The most similar asset to compare is gold given the perception of bitcoin as digital version of gold.”
Considering the vast $235 trillion traditional and alternative asset class (excluding bank and FX reserve holdings), the JPMorgan strategist detailed that the amount of gold held for investment purposes is around $3.3 trillion, implying an allocation to gold of around 1.4%. “Interestingly, only 7% of this gold, or $230 billion, is held through funds (primarily physical gold ETFs [exchange-traded funds]). The remaining portion is held in bars and coins,” Panigirtzoglou noted, pointing out:
One could argue that if bitcoin matches gold in investors’ portfolios, its market cap should rise to $3.3 trillion from $1.3 trillion currently, implying more than doubling in price. However, this calculation misses an important factor which is risk.
“Most investors take risk and volatility into account when they allocate across asset classes, and given the volatility of 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,” Panigirtzoglou opined.
The JPMorgan strategist explained that if instead, “one assumes bitcoin matches gold in risk capital terms, the implied allocation falls to $3.3 trillion/3.7 = $0.9 trillion.” He clarifies:
This implies a bitcoin price of $45k, significantly lower from current levels. In other words, with the bitcoin price at $68k currently, the implied allocation to bitcoin within investors’ portfolios has already surpassed that of gold in volatility adjusted terms.
Panigirtzoglou also shared his analysis of how much of bitcoin would eventually be held in ETF format. “Again if one looks at gold as a guide, around $230 billion of gold held for investment purposes is in ETF format,” he said, adding that by applying the same volatility ratio of 3.7, it implies a bitcoin ETF size of around $230 billion/3.7 = $62 billion. “In our opinion, this is a realistic target of the potential size of spot bitcoin ETFs over time perhaps within a period of two to three years, though much of the implied net inflow could represent a continued rotational shift from existing instruments and venues to ETFs,” he detailed.
JPMorgan also recently warned that the price of BTC will fall to $42K after the halving in April. Panigirtzoglou said last month that the halving event and the upcoming major ethereum upgrade are “largely priced in.”