Bitcoin is soaring because inflation fears are eating at investors – not because of crypto ETFs, JPMorgan says

Bitcoin sign balloon inflating
  • Investors' growing fears about inflation are behind bitcoin's recent surge, JPMorgan said Wednesday.
  • Its analysts aren't convinced ProShares' first bitcoin ETF is the main reason for the token's rise to all-time highs.
  • "The perception of bitcoin as a better inflation hedge than gold is the main reason for the current upswing," they said.
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The perception that bitcoin is a better inflation hedge than gold has been driving the cryptocurrency's latest run higher, not enthusiasm around the launch of the first US bitcoin-linked exchange-traded fund, according to JPMorgan.

Bitcoin hit a record high near $67,000 on Wednesday, a day after the blockbuster launch of the ProShares Bitcoin Strategy ETF (BITO). JPMorgan's strategists recognized that the trading debut had lifted investor sentiment and the price of the coin, but they downplayed its impact.

"While we accept that bitcoin momentum has shifted steeply upwards since the end of September, we are not convinced the anticipation of BITO's launch was the main reason," the analysts wrote in a note Wednesday.

"We believe the perception of bitcoin as a better inflation hedge than gold is the main reason for the current upswing, triggering a shift away from gold ETFs into bitcoin funds since September."

Investors are getting more worried about increased rates of price rises, and that has revived interest in inflation hedges, including the use of bitcoin as a hedge, according to the JPMorgan team led by Nikolaos Panigirtzoglou.

Shortages caused by broken supply chains and an energy crunch have pushed prices up sharply around the world. That inflation can lead to higher interest rates, taking the shine off assets such as high-growth tech stocks. Investors look for places to put their cash that are less exposed to higher prices.

That thinking has led to a shift from gold into bitcoin, the analysts said. That flow - which was "very intense" during the last quarter of 2020 and the beginning of 2021 - has accelerated in recent weeks, they noted.

"Bitcoin's allure as an inflation hedge has been strengthened by the failure of gold to respond in recent weeks to heightened concerns over inflation, behaving more as a real rate proxy rather than inflation hedge," they said.

Further, this shift looks like it should remain intact and support a bullish outlook for bitcoin into the end of the year, they added.

Bulls view the ProShares bitcoin ETF as a new investment vehicle that draws new investment into the market, the team noted. Bears see it as an incremental addition to an already crowded space, which already offers the Grayscale Bitcoin Trust in the US, as well as Canada-listed ETFs accessible to US investors.

JPMorgan doesn't believe the ProShares launch will trigger a new wave of fresh capital to bitcoin, given investors already have several choices linked to the cryptocurrency. Its analysts highlighted the fall-off in interest that followed the launch of the Purpose Bitcoin ETF (BTCC) last February in Canada.

If that is a guide, the "initial hype with BITO could fade after a week," they said.

JPMorgan seems to be reiterating its stance from earlier this month that institutional investors seem to favor bitcoin as a hedge compared to gold.

Bitcoin was last trading at $66,349 on Thursday, and is up 129% so far this year, according to data from CoinDesk. The price of gold has fallen 8% year-to-date and was last trading around $1,785 an ounce.

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