The Bitcoin price has seen a stunning rally throughout 2020, rising from US$3 600 in March to over US$19 000 in December. In the longer term, JPMorgan JPM +0,7 percent strategists say a US$600 billion catalyst potentially awaits the dominant cryptocurrency.
According to a note from JPMorgan strategists including Nikolaos Panigirtzoglou, a 1 percent allocation from pension funds and insurance firms in the US, eurozone, U.K., and Japan would amount to US$600 billion.
Currently, the market capitalisation of Bitcoin stands at around US$356 billion. If BTC sees an influx of buyer demand that is larger than its current valuation in the next several years, the probability of exponential growth increases.
The optimistic stance towards the Bitcoin price from JPMorgan comes after MassMutual purchased US$100 million worth of BTC.
As Forbes.com contributor Billy Bambrough previously reported, MassMutual, one of the largest insurance companies in the US, invested in Bitcoin. The conglomerate has over US$675 billion in assets under management, based on data from 2016.
MassMutual’s accumulation of Bitcoin is much more significant than a US$100 million institutional buy order. It sets a precedent across the insurance and the pension fund sector that BTC is a legitimate store of value.
It sets a positive image around Bitcoin and showcases unique characters as a store of value.
Bitcoin is special because it can act as both a store of value and an inflation hedge while exposing investors to exponential growth.
Typically, hedges against inflation are like insurance for a portfolio against potential downside risks. They are not there to drive gains but rather protect gains from losses when the market turns.
Although the Bitcoin price can undergo massive swings in the short-term, its long-term outlook remains bright due to its valuation gap with gold. Bitcoin is still in a nascent phase of growth because there is a massive valuation gap between BTC and gold. The gold market is valued at around US$9 trillion, and BTC accounts for less than 4 percent of that.
“MassMutual’s Bitcoin purchases represent another milestone in the Bitcoin adoption by institutional investors. One can see the potential demand that could arise over the coming years as other insurance companies and pension funds follow MassMutual’s example,” the note from JPMorgan strategists read.
Another compelling characteristic of Bitcoin is that it could rally in tandem with risk-on assets when the market sentiment brightens.
Hence, albeit investors consider Bitcoin as a safe-haven and an inflation hedge, it could increase with stocks.
For instance, stocks have started to see a small recovery in after-hours trading as vaccines and fiscal stimulus drive risk-on appetite.
“Global stocks start busy week w/small gains as investors look for vaccine-led recovery&US fiscal+mon stimulus. Bipartisan $908bn US relief bill to be unveiled. Pound jump as last-gasp extension to Brexit talks dodged hard divorce. Bonds down w/US 10y 0.91. Gold 1834, Bitcoin >19k,” Welt’s market analyst Holger Zschaepitz said. — Forbes.