Gold’s Price Could Suffer As Bitcoin Started Taking Its Market Share

Bitcoin has taken a major portion of gold’s market share and will continue to do so in the near future, argued JPMorgan Chase & Co analysts. They highlighted the declining difference in funds allocated in the precious metal and the primary cryptocurrency, saying that the move will “represent the transfer of billions in cash.”

Bitcoin Inflows, Gold Outflows

The cryptocurrency community has debated for years on the narrative that bitcoin is the digital representation of gold. After all, both have common features, such as the limited supply, and are supposed to have a hedging role.

The most optimistic members speculated that large institutional investors will eventually realize bitcoin’s superiorities over gold, mainly its digital scarcity, and turn away from the precious metal.

So far, 2020 has turned out to be the year with the most substantial inflows of institutional money in bitcoin. This is exemplified with Grayscale’s constantly growing quarterly reports, celebrated names such as Paul Tudor Jones III and Stan Druckenmiller, and Wall Street giants like Guggenheim Partners.

At the same time, gold ETFs have started to register notable outflows. JPM’s quantitative strategists, led by Nikolaos Panigirtzoglou, confirmed this outcome in a recent report cited by Bloomberg.

The analysts said that “money has poured into Bitcoin funds and out of gold since October, a trend that’s only going to continue in the long run as more institutional investors take a position in cryptocurrencies.”

Bitcoin Price Vs. Gold Price. Source: Bloomberg
Bitcoin Price Vs. Gold ETF Holdings. Source: Bloomberg

Gold Will Suffer Because Of Bitcoin

JPM’s analysts further asserted that bitcoin accounts for only 0.18% of family office assets, while gold ETFs take about 3.3%. Despite this still large difference between the two assets’ percentages, Panigirtzoglou believes that the trend has started to change. This needle shift could harm the price of gold in the long-term.

“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.”

Nevertheless, the strategists said that bitcoin’s price might have “overshot” during the Q4 bull run when the asset almost doubled in value. They predicted a short-term retracement while indicating that the precious metal is “due for a recovery.”

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