In a major report on cryptocurrencies and digital finance released a day before Bitcoin’s market capitalization pushed past $1 trillion, JPMorgan analysts argued that the largest cryptocurrency is an “economic sideshow” and the “poorest hedge” against a stock market downturn.
Despite that, JPMorgan’s “Digital transformation and the rise of fintech: Blockchain, Bitcoin and digital finance 2021” concluded that “Bitcoin is here to stay as an ‘alternative’ currency.”
According to the Feb. 18 report, current Bitcoin prices greatly exceed JPMorgan’s estimates of its fair value, based on mining costs and its risks compared with gold. Much of the recent price increase can be attributed to Tesla’s $1.5 billion BTC investment, “with momentum traders amplifying the up move,” the report argued.
Tesla CEO Elon Musk himself poured cold water on his car company’s investment in Bitcoin, saying that it doesn’t really reflect his opinion: “Bitcoin is almost as bs as fiat money. The key word is ‘almost,’” he said on Twitter late on Feb. 18.
While bitcoin proponents argue that it is a “digital gold” that can provide a better hedge against fiat currency inflation and declines in the value of the U.S. dollar, JPMorgan concluded that “correlations with cyclical assets”—stocks that tend to follow the ups and downs of the economy—”are rising as crypto ownership is mainstreamed.”
As for the argument that Bitcoin is a “digital gold” proposed by crypto enthusiasts like Skybridge Capital’s Anthony Scaramucci, who said in early January that “Bitcoin is better at being gold than gold is at being gold,” the JPMorgan report concluded that Bitcoin would need to reach $146,000 in the long-term in order to have its market capitalization equal to total private-sector investment in gold via exchange-traded funds or bars and coins.
As Modern Consensus reported on Jan. 5, the bank’s analysts have concluded that Bitcoin is likely to reach that value, but not anytime soon.
Still, a growing number of traditional finance heavyweights are betting on Bitcoin becoming a store-of-value alternative.
Real Vision founder Raoul Pal said earlier this month that Bitcoin is attracting so much attention it is “basically eating the world” and he “became irresponsibly long.” And in late January, asset management firm CCB International Securities showed a high degree of confidence that Bitcoin is a store of value by selling one-third of its gold holdings to replace them with its digital counterpart.