Bitcoin, a scarce product like gold, is increasingly competing with the most popular precious metal for investors’ attention as a hedge against inflation, which is running at a 13-year high in the U.S.
Inflation concerns in September and October 2021 appear to have renewed investor interest in using bitcoin as an inflation hedge, JPMorgan strategist Nikolaos Panigirtzoglou said. “Bitcoin’s allure as an inflation hedge has perhaps been strengthened by the failure of gold to respond in recent weeks to heightened concerns over inflation.”
Millennials have a preference for cryptocurrencies and they’re becoming more powerful in the investing universe, Panigirtzoglou said. There is “little doubt” bitcoin’s competition with gold will continue, he said, suggesting a long-term bitcoin price target of $146,000. The largest U.S. bank has predicted that number before for Bitcoin — in January, 2021 when Bitcoin was $30,000.
“Considering how big the financial investment into gold is, any such crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term,” Panigirtzoglou said.
Bitcoin was trading at $61,127 as of this writing. The price of the No. 1 cryptocurrency has increased by more than 340 percent in the last year but also fell to less than $30,000. That’s par for the course in the world of crypto trading: “Huge run-ups and equally drastic falls. Over and over,” MacKenzie Sigalos wrote for CNBC.
Experts say Bitcoin’s volatility wont always be bad. Being new and part of a new asset class, it’s still in the price discovery phase — the most volatile of any asset’s life cycle.
Bitcoin’s volatility is about four or five times higher than gold, according to Business Insider. For the $146,000 price to become real, Bitcoin’s volatility would have to fall sharply so that rules-bound investors feel comfortable adding it to their portfolios.
JPMorgan’s global markets strategists appear bullish about crypto. “There is little doubt that cryptocurrencies and digital assets more broadly are an emerging asset class and thus on a multi-year structural uptrend,” they said.
Not everyone agrees, including JPMorgan Chase CEO Jamie Dimon, who has been publicly critical of crypto, recently calling it “worthless” and “fool’s gold.” Crypto skeptic Mark Mobius, founder of Mobius Capital Partners, said on Wednesday that cryptocurrencies are a religion, not an investment. “People should not look at these cryptocurrencies as a means to invest. It’s a means to speculate and have fun. But then you got to go back to stocks at the end of the day,” he said on CNBC.
In a recent report, Panigirtzoglou said that rising interest rates could be a problem for Bitcoin, just as they traditionally have been for gold. Crypto investors should hold Ethereum rather than Bitcoin in an era of rising interest rates, the JP Morgan strategist said.
Low interest rates and massive bond-buying have helped Bitcoin boom and raise its status as “digital gold” and a hedge against inflation. However, central banks are trying to fight inflation, pushing up interest rates and bond yields, MarketsInsider reported. The Federal Reserve cut back on its $120 billion-a-month bond purchases Wednesday.
“The rise in bond yields and the eventual normalization of monetary policy is putting downward pressure on Bitcoin as a form of digital gold, the same way higher real yields have been putting downward pressure on traditional gold,” Panigirtzoglou wrote. “With Ethereum deriving its value from its applications, ranging from DeFi to gaming to NFTs and stablecoins, it appears less susceptible than Bitcoin to higher real yields.”
Listen to GHOGH with Jamarlin Martin | Episode 74: Jamarlin Martin Jamarlin returns for a new season of the GHOGH podcast to discuss Bitcoin, bubbles, and Biden. He talks about the risk factors for Bitcoin as an investment asset including origin risk, speculative market structure, regulatory, and environment. Are broader financial markets in a massive speculative bubble?