The increased adoption of cryptocurrencies as the safe-haven asset by institutional investors could hurt gold, according to JP Morgan Chase & Co. The bank’s quantitative strategists noted that money is being poured into Bitcoin funds and out of gold since October, a trend they believe is only going to continue in the long run as more institutional investors take a position in cryptocurrencies.
This could be problematic for bulls in the precious metal market over the coming years if investors start moving their allocations away from gold and into cryptocurrencies.
“The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced,” wrote the JP Morgan strategists.
The Grayscale Bitcoin Trust, a listed security popular with institutions, has seen inflows of almost $2 billion since October, compared with outflows of $7 billion for gold ETFs (exchange-traded funds), JP Morgan added.
The bank’s calculations suggest Bitcoin only accounts for 0.18% of family office assets, compared with 3.3% for gold ETFs. This means that tilting the needle from gold to bitcoin would represent the transfer of billions in cash.
“If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years,” wrote JP Morgan’s strategists.
In the short term though, there’s a good chance that Bitcoin prices have overshot and gold is due for recovery, the bank said.
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