Bitcoin or gold? Big investors think it’s a no-brainer.
Bitcoin may be the gold of the future, but for now, institutional investors prefer the real article.
Bank failures that began in March spurred professional traders to increase exposure to gold futures, even as they pulled back on getting involved in crypto, according to a Thursday note from JP Morgan analysts.
Bullion is seen as a hedge against potential disaster, but since it does not pay interest, it is less attractive when prices are high. And while the banking crisis not only makes a broad financial disaster look more plausible, it also increases the likelihood that the Federal Reserve could halt hikes or even cut interest rates.
Bitcoin doesn’t have a historical track record, but proponents believe it has similar characteristics, such as a limited supply and low correlation with stocks, that could make it a digital replacement for gold. The token’s price has risen around 44% to $29,387 since regional banks began tipping in early March.
But when it comes to choosing which asset to lean on, large and small investors appear to have diverged, JP Morgan said.
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Between March and early May, money managers sharply increased their exposure to gold futures, building a net long position of about $20 billion. Meanwhile, the amount of gold in exchange-traded funds, a proxy for retail gold yields, rose only slightly.
Investor interest in Bitcoin has gone in the opposite direction. Bitcoin futures data analyzed by JP Morgan appears to show that money managers did not buy into the tokens even as retail investors drove prices higher.
There are countless reasons why institutions may be hesitant to seize Bitcoin as a hedge against disaster. First, Bitcoin has only been around for 14 years and has never faced a serious banking crisis. And while gold prices can be volatile, Bitcoin puts the precious metal to shame. Even with the increase, prices are still down more than 50% from their peak in November 2021.
But more than that, the analysts note, the US is in the midst of a regulatory crackdown on cryptoassets with uncertain consequences for token prices. Regulators have blamed the failures on Silvergate Capital
corp.
(ticker: SI) and Signature Bank
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(SBNY) in part on their heavy dealings with crypto companies, and federal agencies have warned other banks against overdoing crypto.
It’s hard to see Bitcoin as a shelter from the storm while it’s in the eyes of Uncle Sam.
Write to Joe Light at [email protected]
