In a recent note, JP Morgan strategists highlighted the contrasting performance of Bitcoin and gold, suggesting that despite the current decline in Bitcoin price, it could be poised for an upward trajectory.
While some investors see Bitcoin and gold as interchangeable in terms of storage of value and protection against inflation, the cryptocurrency’s actual performance in these areas is subpar.
Lately, while some retail investors have been buying bitcoin, most institutional investors have been holding on to gold.
Even taking this bias into account, the current gold price of just under $2,000 an ounce implies a price for Bitcoin of $45,000, significantly higher than the current level of around $26,200, assuming investors consider them interchangeable.
That said, strategists at JPMorgan said the gold price suggests Bitcoin should be trading significantly higher than its current price level, assuming many investors view the two assets as interchangeable.
Bitcoin as a store of value
Importantly, Bitcoin has only been used as a store of value for 14 years, while gold has been used for thousands of years, making this premise somewhat shaky.
Another factor that may support Bitcoin’s price rise is the so-called “halving” that the cryptocurrency is likely to experience in April or May. Bitcoin “miners” receive bitcoins by processing transactions and securing the network, but the amount of cryptocurrency they receive is cut in half roughly every four years.
The halving will thus double the cost of mining one Bitcoin to around $40,000. In the past, production costs acted as a lower bound for bitcoin prices, analysts said.
However, that doesn’t mean the bank’s strategists are excited about digital assets. In the short term, Bitcoin and other cryptocurrencies are facing a severe regulatory backlash that makes it difficult for institutions to hold these assets and for the crypto industry to grow.
The collapse of the FTX trading platform marked a turning point in a 12-month period in which Bitcoin prices have more than halved, and most investors who have dabbled in crypto over the past two years are taking losses.
“Regulatory challenges in the United States, instability of banking networks for the crypto ecosystem and the fallout from last year’s FTX collapse are likely to limit any upside potential”wrote the analysts.
Source: Live Coins
Barry Siefert is an accomplished journalist and author at The Nation View. He is known for his expertise in the field of cryptocurrency, and has written extensively on the topic. With a background in finance and economics, Barry has a deep understanding of the underlying technology and market forces that drive the crypto industry.