JPM on why Bitcoin will go to $146k, halve, or both

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Macro Morning


The virus crisis, by boosting money supply as well as demand for an “alternative” currency, has supported both gold and bitcoin over the past year. The older cohort preferred gold, while the younger cohorts preferred Bitcoin as an “alternative” currency. Both gold and bitcoin investment vehicles have experienced strong inflows over the past year, as both cohorts saw the case for an “alternative” currency. This simultaneous flow support has caused a change in the correlation pattern between Bitcoin and other asset classes, with a more positive correlation between bitcoin and gold but also between Bitcoin and the dollar (Figure 1). In addition, the simultaneous buying of US equities and Bitcoin by millennials has increased the correlation between bitcoin and S&P500 since last March, so it is more appropriate to characterize bitcoin as a “risk” asset rather than a “safe” asset, also given its still very high 70% realized volatility. To some extent, this is also true with gold. Gold’s correlation with the S&P500 has been predominantly positive over the past year and its volatility at close to 20% is more similar to that of equities than to currencies or bonds (Figure 2). In other words, both bitcoin and gold could be more characterized as “risk” rather than “safe” assets based on their behavior over the past year and investors’ preference for them is likely more of a reflection of a need for an “alternative” currency rather than a need fora “safe” asset or “hedge.”

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