Bitcoin has proven itself to be a risk asset, not a safe haven, with “considerable” potential upside, according to a Friday note from JPMorgan’s Global Quantitative and Derivatives Strategy team obtained by CoinDesk.
Writing to clients in “Flows & Liquidity,” one of JPMorgan’s flagship publications, the authors said that characterizing bitcoin as a “risk” asset rather than a “safe” asset is “more appropriate” based on the leading cryptocurrency’s increased positive correlation with the Standard & Poor’s 500 Index since March.
Bitcoin’s function as a risk asset is “likely more of a reflection of a need for an ‘alternative’ currency rather than a need 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 notably lower than bitcoin’s.
How investors currently perceive bitcoin’s value implies that it could “compete more intensely” with gold as an “alternative” currency over the coming years, the analysts wrote. Bitcoin’s role as a gold competitor is amplified by Millennial investors’ interest in cryptocurrency, according to the note, and the inevitability of the younger investor demographic becoming “over time a more important component” of the investor universe.
Bitcoin’s market capitalization would have to increase by a factor of 10 before it could match the total private sector investment in gold, the author’s note, adding that “even a modest crowding out of gold as an alternative currency over the longer term would imply doubling or tripling of the bitcoin price from here.”
“In other words, the potential long-term upside for bitcoin is considerable.”
Beyond Millennial investor interest, the note highlights the significance of corporate and legacy investor interest giving credibility to bitcoin as an investment vehicle. Specifically, PayPal’s Wednesday announcement of support for bitcoin and alternative…