According to J.P. Morgan’s analysis, Bitcoin spot ETFs are unlikely to see significant asset under management (AUM) growth in the future, especially when compared to gold.
When evaluating Bitcoin ETFs as a replacement for gold and taking volatility into account, a group of analysts headed by Nikolaos Panigirtzoglou came up with a “reasonable size” estimate of $62 billion over the next 2-3 years.
Even though the ETFs have taken in $9.3 billion in net flows since their introduction two months ago, that goal is less ambitious than what more positive crypto experts predict for them. Greyscale and other ETFs have had their AUM increase from $30 billion to more than $50 billion, thanks to the price growth of Bitcoin since then.
Bulls are drastically overestimating Bitcoin’s potential contribution to investors’ portfolios since they aren’t taking the risk connected with the cryptocurrency into consideration, claims JPMorgan. Their bank writes:
“It would be unreasonable to expect bitcoin to equal gold inside investors’ portfolios in notional quantities given that the volatility of bitcoin is about 3.7 times greater than that of gold.”
The overall distribution of Bitcoin to investors amounts to $900 billion when the quantity of gold owned by investors ($3.3 trillion) is divided by the volatility of Bitcoin versus gold (3.7). The current market price of Bitcoin is $69,000, thus, this would imply a price per coin of $45,000.
The bank calculated that Bitcoin ETFs might be worth $62 billion by dividing $230 million (the total value of funds’ gold holdings) by the 3.7 volatility multiple. To be sure, some of those monies could have migrated from other Bitcoin-based investment vehicles to the ETFs in a cyclical fashion.
According to VettaFi, the total asset value of US-based gold ETFs is over $92 trillion. These Bitcoin-based exchange-traded funds are the country’s runner-up in terms of commodities ETFs.
The similarities between Bitcoin and gold as investment vehicles lead many to draw comparisons between the two. They are both good inflation hedges since they are hard to manufacture more of and neither generates any cash flows on its own.
When talking about Bitcoin exchange-traded funds (ETFs), BlackRock CEO Larry Fink has often called the cryptocurrency “digital gold” and called the interest from investors a “flight to quality.”
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