The recent surge in the cryptocurrency market is primarily driven by retail and speculative institutional investors purchasing both gold and bitcoin futures, according to analysts at JPMorgan. This was reported by The Block, citing the company’s report.
Since the launch in early January, spot bitcoin exchange-traded funds (ETFs) have seen significant inflows, while gold ETFs have experienced a decline.
It may appear that investors are shifting from traditional assets to the leading cryptocurrency, but this is not the case, noted JPMorgan. Experts believe that retail and institutional investors have been buying futures on both gold and bitcoin, sparking the market rally.
“Speculative institutional investors like hedge funds and momentum traders, such as CTA, likely also propagated the rally by purchasing gold and bitcoin futures since February, possibly even more so than retail market participants,” the analysts noted.
JPMorgan’s futures indicators suggest a “sharp increase in positions since February.” According to the figures, the leading cryptocurrency recorded an inflow of $7 billion, while gold saw $30 billion.
Not a New Trend
Analysts emphasized that the outflow from gold ETFs is not a new phenomenon and is hardly related to the launch of bitcoin funds. This trend has persisted “over the past four years following the [coronavirus] pandemic.”
“The outflow does not reflect a dislike for gold among private investors like retail traders and family offices, but rather a shift from gold ETFs to physical bars and coins,” JPMorgan asserts.
Regarding bitcoin ETFs, researchers noted a “rotational shift of capital” from crypto exchanges to traditional trading platforms.
Since January, the cumulative outflow of the leading cryptocurrency from CEX has amounted to about $7 billion:
“In other words, it is more likely that the net inflow of retail investors into the newly created ETFs will be closer to $2 billion rather than $9 billion.”
Recent large purchases by MicroStrategy have also bolstered the growth of cryptocurrencies, experts believe. In their view, Michael Saylor’s company is taking a risk by buying bitcoins using borrowed funds through the sale of convertible shares.
“We believe that MicroStrategy’s bitcoin purchases, financed by debt, add leverage and froth to the current cryptocurrency rally and increase the risk of a more significant reduction in leverage in the event of a potential downturn in the future,” JPMorgan concluded.
Previously, the company’s analysts doubted that the leading cryptocurrency would displace gold from investors’ portfolios. They noted that the status quo will remain despite large inflows into ETFs based on the leading cryptocurrency.
In February, ETC Group’s head of research, Andre Dragos, stated that in the long term, the leading cryptocurrency will undermine gold’s position as the primary store of value.
Earlier that month, experts noted a capital shift from precious metal-based ETFs to bitcoin funds.