Bitcoin faces challenges in matching gold’s allocation in investor portfolios

In a recent research report, JPMorgan highlighted the challenges facing Bitcoin (BTC) in matching the allocation of gold within investor portfolios. Despite comparing the two assets, Bitcoin’s inherent risk and volatility pose significant hurdles.

Bitcoin’s potential market cap and price projection

JPMorgan’s analysis suggests that for Bitcoin to align with gold’s allocation, its market cap would need to soar to $3.3 trillion, doubling its current price. However, the report cautions against this scenario, citing Bitcoin’s elevated risk and volatility, approximately 3.7 times higher than gold.

The report further outlines that if Bitcoin were to match gold in “risk capital terms,” the implied allocation would drop to $0.9 trillion, resulting in a projected price of $45,000. This figure stands notably lower than Bitcoin’s current trading level, hovering around $67,400.

As Bitcoin’s volatility-adjusted allocation has already surpassed gold at its current price level, JPMorgan underscores the significance of risk and volatility considerations in portfolio allocation decisions. Despite the growing popularity of Bitcoin, its extreme price fluctuations make it less attractive for traditional investors seeking stability within their portfolios.

Bitcoin ETF market potential

JPMorgan’s report also delves into the potential size of the Bitcoin exchange-traded fund (ETF) market, estimating it to be around $62 billion based on the volatility ratio between Bitcoin and gold. While net inflows into spot Bitcoin ETFs amount to approximately $9 billion, the report suggests that some inflows may represent a shift from existing investment instruments rather than entirely new capital entering the market.

The bank posits that the projected size of the spot Bitcoin ETF market could materialize within two to three years, driven by continued interest from investors seeking exposure to the cryptocurrency in a more regulated and accessible manner.

Despite Bitcoin’s growing acceptance and adoption, its journey to match gold’s allocation in investor portfolios remains fraught with challenges. While some investors are attracted to its potential for outsized returns, others remain wary of its inherent volatility and regulatory uncertainties.