Bitcoin has show itself to be a risk asset, not a safe haven, with “considerable” potential upside, according to a Friday note from JPMorgan’s Worldwide Quantitative and Derivatives Strategy team obtained by CoinDesk.
Writing to clients in “Flows & Liquidity,” one of JPMorgan’s flagship booklets, the authors said that characterizing bitcoin as a “risk” asset rather than a “safe” asset is “more apportion” based on the leading cryptocurrency’s increased positive correlation with the Standard & Poor’s 500 Index since Hike.
Bitcoin’s function as a risk asset is “likely more of a reflection of a need for an ‘alternative’ currency rather than a trouble for a ‘safe’ asset or ‘hedge’.”
“To some extent, this is also true with gold,” the authors add, although the yellow metal’s volatility is importantly lower than bitcoin’s.
How investors currently perceive bitcoin’s value implies that it could “compete innumerable intensely” with gold as an “alternative” currency over the coming years, the analysts wrote. Bitcoin’s role as a gold contestant is amplified by Millennial investors’ interest in cryptocurrency, according to the note, and the inevitability of the younger investor demographic becoming “all about time a more important component” of the investor universe.
Bitcoin’s market capitalization would have to increase by a agent of 10 before it could match the total private sector investment in gold, the author’s note, adding that “sober a modest crowding out of gold as an alternative currency over the longer term would imply doubling or tripling of the bitcoin valuation from here.”
“In other words, the potential long-term upside for bitcoin is considerable.”
Beyond Millennial investor percentage, the note highlights the significance of corporate and legacy investor interest giving credibility to bitcoin as an investment vehicle. Specifically, PayPal’s Wednesday proclamation of support for bitcoin and alternative cryptocurrencies (altcoins) is “another big step toward corporate support for bitcoin,” according to the note.
The makers also identify “strong growth” in institutional investor interest in bitcoin indicated by activity in CME futures and options shops. As of Thursday, for example, CME bitcoin futures markets quietly became the second-largest measured by open interest, overtaking BitMEX and Binance, two governing crypto-only trading platforms.
Utility as a store of value isn’t the only catalyst for potential upside, however. According to the inventors, the price of bitcoin and altcoins could appreciate significantly if adopted as means of payment. “The more economic agents take on cryptocurrency as a means of payment in the future, the higher their utility and value,” the note says.
Ultimately, even despite the fact that bitcoin “looks currently overbought for the near term,” the authors reiterate that the potential long-term upside for bitcoin is “noticeable.”