Bitcoin has the potential to reach $146,000 in the long term as it competes with gold as an asset class, JPMorgan published in a note. However, the most popular cryptocurrency will require its price volatility to drop considerably for institutional investors to confidently make a bet on it.
Bitcoin’s market cap which is calculated by multiplying the price by the total number of coins in circulation currently stands at more than $575 billion, as per reports. According to JPMorgan, it would have to climb by 4.6 times to match the $2.7 trillion of private sector gold investment. JP Morgan, which is one of the biggest investment banks in the US, believes that Bitcoin can compete with gold as an alternative currency in the long term.
“A crowding out of gold as an ‘alternative’ currency implies big upside for Bitcoin over the long term,” the strategists wrote. However, “a convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is in our mind a multiyear process. This implies that the above-$146,000 theoretical Bitcoin price target should be considered as a long-term target, and thus an unsustainable price target for this year.”
Bitcoin, whose price has more than quadrupled over the past year, on Monday slid as much as 17 per cent, the biggest drop since March, after it breached $34,000 for the first time over the weekend, reiterating its volatile nature. JP Morgan noted that there is little doubt that the institutional flow impulse into bitcoin is what distinguishes 2020 from 2017.
Back in 2017, the cryptocurrency’s value neared $20,000 a coin in m ide-December shortly after which it sunk as low as $3,122. Analysts believe that there was a lack of products for the new converts to experience back then as against the endless uses, protocols, services across farming, lending, and standard trading today.
“This long term upside based on an equalization of the market cap of bitcoin to that of gold for investment purposes is conditional on the volatility of bitcoin converging to that of gold over the long term,” JPMorgan’s strategists wrote. “The reason is that, for most institutional investors, the volatility of each class matters in terms of portfolio risk management, and the higher the volatility of an asset class, the higher the risk capital consumed by this asset class.”
Bitcoin had posted an average daily move of 2.7 per cent in 2020, Bloomberg noted. By comparison, the price of gold saw swings of 0.9 per cent.