JPMorgan: Bitcoin has ‘Considerable’ Long-Term Upside as it Competes with Gold ‘More Intensely’
The tide is turning.
This week PayPal announced support for cryptocurrencies, and now JP Morgan is changing the tune, as it says, Bitcoin is competing with gold as an “alternative” currency.
The physical gold market, favored by the older generations, is worth $2.6 trillion, including the assets held within gold ETFs.
Bitcoin, on the other hand, has a market cap of $240 billion and mostly favored by millennial investors. In 2020, to date, Bitcoin has surged more than 80% compared to gold’s nearly 25%.
To catch up to hold in terms of market value, the leading digital currency would have to surge more than 10x from current levels. JPMorgan said in a note on Friday,
“Even a modest crowding out of gold as an ‘alternative' currency over the longer term would imply doubling or tripling of the bitcoin price.”
Over time, the investment bank said crypto could be held for other reasons than just being a store of wealth as gold is.
“Cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment. The more economic agents accept cryptocurrencies as a means of payment in the future, the higher their utility and value.”
It also mentioned PayPal that the endorsement from the payments company is “another big step toward corporate support for bitcoin.” This, according to them, would further enhance millennials’ usage of BTC as an alternative currency.
Greater interest by institutional investors
Overall, the potential long-term upside for bitcoin is considerable as it competes more “intensely” with gold, “given that millennials would become over time a more important component of investors' universe,” states JPMorgan.
Millennials and corporate endorsement of the digital currency have also induced greater interest by institutional investors, further says the report.
This is evidenced by the spike in activity across both bitcoin futures and options at CME. Before Paypal's announcement this week, open interest on CME bitcoin futures averaged a record of 10.5K contracts per day in Q3, up 32% from Q2 and up 127% vs. Q3 2019.
Moreover, institutional flow saw strong growth, with 692 new accounts added, and the number of large OI holders also averaged 79 in Q3, up 64% compared to Q3 2019.
“Holy Cow. Most bullish commentary for bitcoin that I have read from JP Morgan” noted Dan Tapiero, co-founder of 10T Holdings. “Widespread research piece reaches all clients of the bank. Paypal announcement “cover” for other traditional players to get involved,” he added.