In a recent note, JPMorgan analysts clarified the driving forces behind the current volatility in Bitcoin and the overall cryptocurrency market.
Contrary to popular belief, the rally is not due to investors switching from gold to Bitcoin, but rather individual and speculative institutional investors buying both gold and BTC futures, analysts say.
Since the launch of spot Bitcoin ETFs earlier this year, there has been significant inflows into these funds, while gold ETFs have seen outflows. This led to comments that investors were shifting from gold to Bitcoin. But JPMorgan analysts led by Nikolaos Panigirtzoglou argue that this is not the case. Instead, they suggest that the rally is being driven by retail and institutional investors buying both gold and BTC futures.
“Beyond individual investors, speculative institutional investors such as hedge funds, including momentum traders such as commodity trading advisors, have also spread the rally by purchasing both gold and Bitcoin futures since February, perhaps more intensively than individual investors,” analysts wrote. “It looks like it,” he said.
Analysts noted that outflows from gold ETFs are not a new phenomenon triggered by the launch of spot BTC ETFs this year. Instead, this trend has continued for the last four years since the pandemic, according to analysts.
Moreover, gold ETF investors are not switching to Bitcoin ETFs, according to analysts. In fact, they are buying more gold, but in the form of bullion and physical gold. “This gold ETF outflow trend does not reflect a flight from gold by private investors such as individuals and family offices, but rather a shift away from physical gold ETFs towards bullion and jewelry gold,” analysts said.
MicroStrategy's recent large BTC purchases also played a role in strengthening this year's crypto rally. The company, led by Michael Saylor, appears to be turning itself into a leveraged investment in BTC by purchasing Bitcoin through the sale of convertible bonds. However, according to analysts, this approach is risky:
“We believe MicroStrategy's debt-financed BTC purchases have added leverage and froth to the current crypto rally and increase the risk of more severe deleveraging during a possible future downturn.”
*This is not investment advice.