Bitcoin could join gold as a reliable, long-term way to store wealth as the cryptocurrency gains users and value in a craze which JP Morgan’s analysts believe may turn into something resembling a more traditional asset class.
The digital currency now trades at more than $11,000 and both Cboe Global Markets and the CME Group plan to start offering bitcoin futures this month.
This move to join more formal financial markets “has the potential to elevate cryptocurrencies to an emerging asset class,” according to JP Morgan analyst Nikolaos Panigirtzoglou.
The stance is particularly surprising because JP Morgan’s chief executive and chairman Jamie Dimon has long been a high profile critic of bitcoin.
Earlier this month the powerful Wall Street boss said he would fire anyone trading bitcoin, calling it “stupid” and warning that the cryptocurrency “will blow up”. He called the currency “a fraud” which is “worse than tulip bulbs” – a reference to an infamous bubble in the 17th century.
He is a long-time sceptic of the digital currency, arguing in 2015 that it would never go mainstream: “It’s just not going to happen. You are wasting your time,” Mr Dimon said at the time.
But Mr Panigirtzoglou believes the market may be changing now.
“The prospective launch of bitcoin futures contracts by established exchanges in particular has the potential to add legitimacy and thus increase the appeal of the cryptocurrency market to both retail and institutional investors,” he said.
The analyst said this is important because it makes bitcoin increasingly useful “as a store of wealth and means of payment”, which could drive its value higher.
The blockchain technologies which underpin bitcoin appear to make it particularly secure for transactions and for storing wealth, he said.
“Judging by other stores of wealth such as gold, cryptocurrencies have the potential to grow further from here,” he added.
Bitcoin has not overtaken gold in terms of investment levels, total value in circulation or transaction volumes. But it has grown rapidly and could make more progress to match or even surpass the use of gold.
The total value of all bitcoins and other cryptocurrencies is now more than $300bn, Mr Panigirtzoglou said, compared to $1.5 trillion for all of the gold outside central banks’ vaults.
However, the cryptocurrencies are more valuable than the $90bn of gold held via exchange traded funds (ETFs), which indicates the scale of growth of bitcoin and ethereum, the second-largest such cryptocurrency.
Last month bitcoin trading volumes hit $140bn and ethereum rose to $30bn, compared with an average of almost $900bn per month in gold trading.
In total Mr Panigirtzoglou estimates that a net $6bn has been invested in cryptocurrencies since 2009, indicating that the $300bn total market capitalisation is based on a relatively illiquid market.
However he did warn that bitcoin’s rise is not by any means certain.
“Any given cryptocurrency does face competition from other cryptocurrencies and this poses a risk to their individual valuation,” he said.
“The valuation of bitcoin for example is affected by other digital currencies that compete for acceptance, often claiming to offer better technical, security or transactional characteristics. Some of them could even gain advantage in the future by offering better compliance with regulatory requirements.”