Bitcoin will eat gold's market share, according to JPMorgan

Growing mainstream acceptance of Bitcoin (BTC) as a reserve asset is having a direct impact on gold, setting the stage for a major shift in institutional allocation between the two assets, according to analysts at JPMorgan Chase.

Quantitative strategists, including Nikolaos Panigirtzoglou, believe that Bitcoin’s digital gold narrative will draw investors away from precious metals, possibly for years to come, leading to a large divergence in price between the two assets.

The bank said Bitcoin only accounts for 0.18% of assets held at family offices, compared with 3.3% for gold exchange-traded funds. Using this data as a starting point, only a small reallocation from gold to BTC could lead to “structural headwinds” for bullion’s price.

In a note to clients that was obtained by Bloomberg, the strategists said:

“The adoption of bitcoin by institutional investors has only begun, while for gold, its adoption by institutional investors is very advanced. If this medium to longer-term thesis proves right, the price of gold would suffer from a structural headwind over the coming years.”

Looking beyond JPMorgan’s analysis, there is clear evidence that institutional uptake of Bitcoin is rising. Grayscale, a digital-asset manager, has recorded record inflows into its Bitcoin and Ethereum (ETH) trusts. Grayscale, Paypal and Cash App are buying up more BTC than is being mined each day.

CoinShares, a European digital asset manager, has also reported on the recent surge in crypto capital inflows. Over just four weeks, Bitcoin products sucked in $1.4 billion. Gold, meanwhile, recorded record outflows of $9.2 billion.

Investors wishing to go along with the trend can purchase one unit of Grayscale's Bitcoin Trust and sell three units of the SPDR Gold Shares trust, the bank said. 

Despite Bitcoin’s long-term value proposition, the digital asset is likely overextended after the latest rally. The strategists cite the possibility of strong selling pressure in the short term.

Bitcoin’s price briefly fell below $18,000 on Wednesday, having declined by more than 7% at the lowest point.