• Fund inflows into crypto funds increase while capital flows out of gold investments
• JPMorgan: Adoption of Bitcoin by institutional investors is just beginning
• Gold price facing structural headwinds in the coming years
A trend reversal can be seen on the financial markets in the middle of the ongoing Corona crisis: More and more investors are putting their money in crypto funds and turning their backs on gold, which was once a safe haven. This is reported by the news agency “Reuters”, citing data from the asset manager CoinShares. Accordingly, in the first week of December 2020 alone, 429 million US dollars flowed into crypto funds. That was the second-highest value ever, according to CoinShares, after a new record only set in November with an inflow of $468 million in just one week. A total of $1.4 billion flowed into Bitcoin investment products alone in the four weeks ended December 7 – while $9.2 billion was withdrawn from gold investments in the same period.
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The US investment bank JPMorgan also sees this trend away from gold and towards Bitcoin. According to their observations, there has been an increase in outflows of funds from gold and new investments in Bitcoin since October. The bank writes in a study available to “Bloomberg” that almost two billion US dollars have flowed to the Grayscale Bitcoin Trust alone since October. In contrast, around seven billion US dollars flowed out of gold ETFs in the same period. The JPMorgan strategists see the reason for this trend as increasing acceptance of cryptocurrencies among institutional investors, who would now gradually shift their positions – at the expense of the yellow precious metal.
JPMorgan sees the start of a long-term trend
“The acceptance of Bitcoin by institutional investors has only just begun, while the acceptance of gold by institutional investors is already very advanced,” says the study by the team led by JPMorgan strategist Nikolaos Panigirtzoglou, according to “Bloomberg”. According to the experts, this means that more and more financial market professionals will now build up positions in Bitcoin and Co. However, since cryptocurrencies like Bitcoin are still quite new, they should benefit significantly from this increasing acceptance. CoinShares investment strategist James Butterfill made a similar statement to Reuters. “Based on the high level of interest, one can assume that we are only at the beginning of institutional adoption [von Kryptos] and not that it is already flattening out again,” he told the news agency.
What should be good news for all crypto fans could turn out to be a problem for precious metals bulls, according to JPMorgan. Because even if investors shift even a small portion of their positions from precious metals to cryptos, there could be a major change in the gold and crypto market, according to the investment bank, according to “Bloomberg”. The team around Nikolaos Panigirtzoglou looked at the investments of family offices as an example. As JPMorgan writes according to “Bloomberg”, these companies, which manage the large private assets of the respective owner family, currently only hold 0.18 percent of the assets in Bitcoin, but 3.3 percent of the assets in gold ETFs. Should cryptos like bitcoin gradually gain more weight, it would mean that billions of US dollars are being moved in this area alone.
Experts see years of headwinds for gold
If JPMorgan’s medium- to long-term thesis that more and more institutional investors are shifting at least part of their investment assets from gold to Bitcoin proves to be correct, then “the price of gold would suffer from structural headwinds over the coming years,” says the Study. According to Bloomberg, investors who share this opinion recommend buying one unit of the Grayscale Trust and selling three units of the SPDR Gold Trust.
The US investment bank is not the only analysis house that assumes that Bitcoin and Co. will gradually overtake the yellow precious metal. The experts at Deutsche Bank also reported that there were increasing demands from investors to use Bitcoin instead of gold as a hedging instrument. Rick Rieder, CIO of the investment company BlackRock, was also certain that Bitcoin would one day replace gold.
Especially in the long term, there is a lot to be said for the cyber motto. Because as “Business Insider” reports, JPMorgan expects – in addition to the increasing acceptance of Bitcoin – also an increase in the intrinsic value of the crypto coin. According to models from the US bank, this is currently between 11,000 and 12,000 US dollars and is therefore well below the current stock market price. In the past, when the gap between intrinsic value and actual price was already so large, mining subsequently became harder and more expensive, which experts say boosted Bitcoin’s intrinsic value. This development has not yet been observed, but according to the experts it is likely to be imminent.
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