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J.P. Morgan anticipates that Bitcoin spot ETFs are unlikely to experience significant growth in assets under management (AUM) over the long term, considering the asset’s valuations in comparison to gold.
Analysts, led by Nikolaos Panigirtzoglou, stated that when Bitcoin ETFs are evaluated as an alternative to gold and adjusted for volatility, they have a projected “realistic size” of $62 billion within the next two to three years.
JPMorgan Pessimistic About Bitcoin
This target is less optimistic than the projections made by more bullish crypto analysts for the ETFs, which have already attracted $9.3 billion in net inflows since their inception two months ago. Coupled with Bitcoin’s price increase during this period, ETFs, including Grayscale, have seen their AUM grow from $30 billion to over $50 billion.
According to JPMorgan, bullish investors are not considering the risks associated with Bitcoin, leading to an exaggerated estimation of the proportion of investors’ portfolios that it will represent. The bank stated:
“Most investors factor in risk and volatility when distributing their investments across asset classes, and given that Bitcoin’s volatility is approximately 3.7 times that of gold, it would be unrealistic to expect Bitcoin to equate to gold in terms of notional amounts within investors’ portfolios.”
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By dividing the total amount of gold currently owned by investors ($3.3 trillion) by Bitcoin’s volatility relative to gold (3.7), a total Bitcoin allocation for investors of $900 billion is derived. This suggests a price per coin of $45,000 – significantly lower than Bitcoin’s current market price of $69,000.
The bank calculated its $62 billion estimate for Bitcoin ETFs by considering all gold held by funds, which amounts to $230 million, and dividing it by the 3.7 volatility factor. However, many of these funds may have resulted from a rotational shift away from other Bitcoin-related investment vehicles and into the ETFs.
Bitcoin Compared to Gold
Gold ETFs in the United States reportedly hold approximately $92 trillion in assets, according to VettaFi. Their Bitcoin counterparts rank as the next largest commodity ETFs in the nation.
Bitcoin and gold are frequently compared due to their similar characteristics as investment options. Neither generates intrinsic cash flows, but both are challenging to produce in greater quantities, making them effective hedges against inflation.
Larry Fink, CEO of BlackRock, has frequently referred to Bitcoin as “digital gold” when discussing Bitcoin ETFs, and has characterized investors’ interest in the asset as a “flight to quality.”
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