Bitcoin could join gold as a reliable, long-term way to store wealth as the cryptocurrency gains users and value, JP Morgan’s analysts believe.
They predicted that the Bitcoin craze could result in something resembling a more traditional asset class as the digital currency hit a price of more than US$11,000. Both Cboe Global Markets and the CME Group plan to start offering Bitcoin futures this month.
The move to join more formal financial markets “has the potential to elevate cryptocurrencies to an emerging asset class,” according to JP Morgan analyst Nikolaos Panigirtzoglou.
The stance is surprising because JP Morgan’s chief executive and chairman Jamie Dimon has long been a critic of Bitcoin. This month the powerful Wall Street boss said he would fire anyone trading Bitcoin, warning that the cryptocurrency “will blow up.” He called it a fraud “worse than tulip bulbs,” a reference to an infamous bubble in the 17th century. He said in 2015 that it would never go mainstream.
But Mr Panigirtzoglou believes the market is changing. “The prospective launch of Bitcoin futures contracts by established exchanges in particular has the potential to add legitimacy and thus increase the appeal of the cryptocurrency market to both retail and institutional investors,” he said.
The analyst said this was important because it makes Bitcoin increasingly useful “as a store of wealth and means of payment”, which could drive its value higher. The blockchain technologies which underpin Bitcoin appear to make it particularly secure for transactions and for storing wealth, he said.
“Judging by other stores of wealth such as gold, cryptocurrencies have the potential to grow further from here,” he added. Bitcoin has not overtaken gold in terms of investment levels, value in circulation or transaction volumes. But it has grown rapidly and could make more progress to match or even surpass the use of gold.
The total value of all Bitcoins and other cryptocurrencies is now more than US$300 billion, Mr Panigirtzoglou said, compared with US$1.5 trillion for all of the gold outside central banks’ vaults.
However, the cryptocurrencies are more valuable than the US$90 billion of gold held via exchange traded funds (ETFs), which indicates the scale of growth of Bitcoin and Ethereum, the second-largest such cryptocurrency. Last month Bitcoin trading volumes hit US$140 billion and Ethereum rose to US$30 billion, compared with an average of almost US$900 billion per month in gold trading.
Mr Panigirtzoglou estimates that a net US$6 billion has been invested in cryptocurrencies since 2009, indicating that the US$300 billion total market capitalization is based on a relatively illiquid market. However, he did warn that Bitcoin’s rise was by no means certain. “Any given cryptocurrency does face competition from other cryptocurrencies,” he said.