A new note from strategists at investment bank JPMorgan has warned that the value of gold will "suffer" as institutional investors move funds away from gold and into cryptocurrency funds. According to authors of the note, which lays out a bullish case for cryptocurrencies, gold will face a "structural flow headwind" as investors shift allegiance and money to Bitcoin (BTCUSD). The report does not provide a timeline for this event.

Bitcoin accounts for only 0.18% of assets held at family offices, the note's authors write. That amount is a fraction of the 3.3% of the total funds set aside for gold exchange-traded funds (ETFs). A change of strategy from gold to Bitcoin at family offices will represent the transfer of billions of dollars in cash. 

Key Takeaways

  • JPMorgan analysts predict that gold prices will suffer and face headwinds when investors move funds from gold to Bitcoin ETFs.
  • The note comes on the back of record inflows into Bitcoin investing products.
  • Investors and traders should remember that the size and scope of both markets, in their current form, are different.

"The adoption of Bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced," the strategists wrote. "If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind in the coming years." In the near term, Bitcoin price is "skewed to the downside."

While the bank's CEO has made remarks critical of Bitcoin, analysts at JPMorgan have been fairly optimistic about the cryptocurrency's prospects. As far back as 2018, in the midst of a slump in cryptocurrency markets and a growing chorus questioning their viability as trading venues, the analysts predicted that cryptocurrencies were "here to stay."

At the beginning of this year, JPMorgan analysts highlighted the potential of stablecoins as a payment mechanism. More recently, when Bitcoin price was hovering around the $13,000 mark in October, they suggested a "doubling" or "tripling" in its price due to the cryptocurrency's popularity as digital gold. The bank's latest missive comes just after Bitcoin reached a peak in its prices. Investment activity has also picked up, and Grayscale, the biggest investing fund company for cryptocurrencies, has witnessed record inflows this year on the back of higher market prices.

To be sure, Bitcoin has indeed outperformed gold this year as an asset. However, that comparison does not take into account the size and scope of the respective markets. JPMorgan's October report estimated that the precious metal was worth $2.6 trillion, including its physical assets held as bars and coins, while Bitcoin had a valuation of $240 billion.

Gold has been around for centuries as a safe haven from monetary turmoil. In contrast, Bitcoin is less than 15 years old. That said, as the markets mature for Bitcoin and, by extension, other cryptocurrencies, there is a good chance that family offices will become more comfortable with them.