In the days when Bitcoin's price had more than halved from its April 15 all-time high of $64,895, JPMorgan cross-asset strategist Nikolaos Panigirtzoglou used his weekly reports to encourage selling. He advised institutional clients that Bitcoin's upward momentum had ended and the only logical direction was down.
However, as Bitcoin’s price rebounded sharply, these types of weekly reports suddenly disappeared in July. Subsequent JPMorgan reports began warning that the market had become overly optimistic.
This Wednesday, Bitcoin surged again above $55,000, with its market capitalization once again exceeding $1 trillion and pushing the total market capitalization of all cryptocurrencies above $2.3 trillion. In this context, Panigirtzoglou’s stance on Bitcoin has shifted once more. The quantitative analyst wrote in his latest liquidity report:
“The increase in Bitcoin’s share is a healthy development, as it is more likely to reflect institutions holding a not smaller share of cryptocurrencies.”
Beyond these repeated changes in stance, financial blog Zero Hedge pointed out that JPMorgan strategists also previously misjudged institutional preferences for Bitcoin versus Ethereum. Two weeks ago, JPMorgan published a report titled “Institutional Investors Are Flocking to Ethereum, Leaving Bitcoin,” but in reality, since early October, Bitcoin has significantly outperformed Ethereum.
In his latest report, Panigirtzoglou explained:
“We were mainly observing positions in CME futures and made judgments based on their performance through most of August and September, which may have been somewhat lagging. As shown in the left chart below (Figure 16). Since the end of September, institutional preference for Ethereum has reversed, with the proxy for Bitcoin positions rebounding sharply. This rebound at least partly reflects short covering, as shown in the right chart (Figure 17), which depicts the liquidation results of Bitcoin futures across all exchanges. According to Figure 17, there appears to have been a small increase in the liquidation of short Bitcoin futures positions over the past week or two.”
After explaining the reasons for the previous error, the report went on to elaborate on three reasons for Bitcoin’s surge. His third point offers a unique insight: “Institutional investors seem to be returning to Bitcoin, perhaps viewing it as a better inflation hedge than gold.”
The following are the reasons JPMorgan believes will support Bitcoin’s rise:
Regulatory Clarity and Acceptance
US policymakers have indicated they will not ban the use or mining of cryptocurrencies, reducing regulatory uncertainty and fostering a more stable environment for institutional adoption.
Technological Adoption and Legal Recognition
El Salvador’s legal recognition of Bitcoin has led to better application of Lightning Network technology and second-layer payment solutions. According to President Bukele, by early October, 2.7 million Salvadorans had started using the Chivo wallet, which utilizes Lightning Network technology.
Inflation Hedging Renewed Interest
Investor concerns about inflation have reignited interest in using Bitcoin as a hedge. In recent weeks, gold’s price has failed to respond effectively to market inflation worries, increasing investor willingness to use Bitcoin as an anti-inflation tool.
JPMorgan stated:
“As shown in the chart below, preliminary signs indicate that the trend of investors shifting from gold to Bitcoin, which was observed in Q4 2020 and most of Q1 2021, has reemerged in recent weeks.”
If JPMorgan’s analysis is correct this time, it might recommend Bitcoin to its institutional clients, especially those holding 60/40 balanced investment portfolios. If global 60/40 portfolios were to reallocate even a small portion of assets to digital currencies, the potential inflows into Bitcoin and other cryptocurrencies could be very significant.
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Frequently Asked Questions
What caused the recent surge in Bitcoin’s price?
The surge is driven by factors including reduced regulatory fears, technological adoption in countries like El Salvador, and renewed interest in Bitcoin as an inflation hedge compared to traditional assets like gold.
How does Bitcoin compare to gold as an inflation hedge?
Bitcoin is increasingly seen as a modern alternative to gold due to its digital nature, limited supply, and growing institutional acceptance. While gold has historical precedent, Bitcoin offers portability and divisibility, making it attractive to newer investors.
What is the significance of institutional investors shifting to Bitcoin?
Institutional involvement brings greater liquidity, stability, and legitimacy to the cryptocurrency market. Large-scale allocations from balanced portfolios could lead to substantial capital inflows, further boosting Bitcoin’s value and mainstream adoption.
Is now a good time to invest in Bitcoin?
Investment decisions should be based on individual risk tolerance and market research. While recent trends are positive, cryptocurrency markets are volatile, and it’s essential to consider long-term strategies rather than short-term fluctuations.
How does the Lightning Network improve Bitcoin’s usability?
The Lightning Network enables faster and cheaper transactions by processing them off-chain, making Bitcoin more practical for everyday payments and microtransactions, thus enhancing its utility beyond store of value.
What are the risks of investing in Bitcoin?
Rights include high price volatility, regulatory changes, technological vulnerabilities, and market sentiment shifts. Investors should diversify their portfolios and only allocate funds they are willing to risk.