JPMorgan, the $316 billion investment banking giant, said the potential long-term upside for Bitcoin (BTC) is “considerable.” This new optimistic stance towards the dominant cryptocurrency comes after PayPal allowed its users to buy and sell crypto assets.
JP Morgan, from "Bitcoin is a fraud and will blow up" in 2017 to "Bitcoin’s competition with gold" in 2020.— Krüger (@krugermacro) October 24, 2020
We've come a long way. pic.twitter.com/xceabkHaVJ
The main factor put forward by JPMorgan’s Global Markets Strategy division is Bitcoin’s competition with gold. The note, obtained by Business Insider, reads:
"The potential long-term upside for bitcoin is considerable if it competes more intensely with gold as an 'alternative' currency we believe, given that Millenials would become over time a more important component of investors' universe.”
The analysts also pinpointed the large valuation gap between Bitcoin and gold. At least $2.6 trillion is said to be stored in gold exchange-traded funds (ETFs) and bars. In contrast, the market capitalization of BTC remains at $240 billion.
JPMorgan hints at three major reasons for a BTC bull ma
JPMorgan’s note essentially emphasized three major reasons to support the long-term growth potential of Bitcoin.
First, Bitcoin has to rise 10 times to match the private sector’s gold investment. Second, cryptocurrencies have high utility. Third, BTC could appeal to millennials in the longer term.
Following the integration of crypto purchases by PayPal and the rapid increase in institutional demand, Bitcoin is increasingly being viewed as a safe-haven asset.
There is a massive difference in the valuation of gold and Bitcoin. Albeit the former has been recognized as a safe-haven asset for a long period, BTC has many distinct advantages. JPMorgan analysts said:
“Mechnically, the market cap of bitcoin would have to rise 10 times from here to match the total private sector investment in gold via ETFs or bars and coins.”
One of the advantages Bitcoin has over gold is utility. Bitcoin is a blockchain network at its core. That means users can send BTC to one another on a public ledger, efficiently and practically. To transfer gold, there needs to be physical delivery, which becomes challenging.
As seen in many cold wallet transfers, it is easier to move $1 billion worth of capital on the Bitcoin blockchain than with physical gold. The bank’s analysts further explained:
"Cryptocurrencies derive value not only because they serve as stores of wealth but also due to their utility as means of payment. The more economic agents accept cryptocurrencies as a means of payment in the future, the higher their utility and value.”
How long would it take for BTC to close the gap with gold?
Bitcoin is still at a nascent stage in terms of infrastructure, development, and mainstream adoption. As Cointelegraph reported, only 7% of Americans previously bought Bitcoin, according to a study.
Some major markets, in the likes of Canada, still lack a well-regulated exchange market. Large banks are yet to provide custody of crypto assets, and that gives Bitcoin a large room to grow in the next five to ten years.