J.P. Morgan’s Global Markets Strategy Team: “Long-term upside for bitcoin is considerable.”

What Happened?  A well-known Global Quantitative & Derivatives Strategy team at J.P. Morgan issued a research report yesterday (Oct. 23, 2020) illustrating bitcoin’s “competition” with gold.

Why Does This Matter?  Many people still keep track of the fact that J.P. Morgan’s CEO, Jamie Dimon, called bitcoin a fraud in September 2017.  While this is a great source of memes, the point that matters is that a Capital Markets team at one of the biggest banks in the world is writing about their bitcoin investment and trading thesis.  Their audience: thousands of institutional and high-net-worth investors around the world that pay attention to what is written by this team.

A report of this nature by a mainstream bank was unheard of just a couple of months ago, indicating that bitcoin continues to benefit from its network effects and that increased institutional adoption could drive the price even higher (current level of ~$13,000).

Opinion:  Interestingly, it seems reasonable that many people in both the digital asset and more traditional financial world might take different views of some of the points made in the J.P. Morgan report.  In particular, the report considers bitcoin more of a “risk asset” than a “safe asset” or “store of value” due to an increased correlation with the S&P 500 since March.  However, bitcoin’s correlation with U.S. stocks over the last 5 years is extremely low at approximately 0.15.  In addition, many feel that bitcoin has evolved from a mechanism to transfer wealth as a form of e-money to a store of value that is an independent hedge against current monetary stimulus and inflation fears globally.

In contrast, one quote that many would support is “even a modest crowding out of gold as an alternative currency over the longer term would imply doubling or tripling of the bitcoin price from here.”