Bitcoin’s was surged over 300% surge in 2020, breaking its 2017 record as due to investor’s renewed interest in the Cryptocurrency. The crypto asset rose by 171% surge in the fourth quarter of 2020 and one of the best-performing assets of the year.
It has been projected that Bitcoin could rally at the same rate in 2021, which could push the price to $100,000. However, JPMorgan in a note on Monday said that such a higher surge will be unsustainable.
“While we cannot exclude the possibility that the current speculative mania will propagate further, pushing the bitcoin price up towards the consensus region of between $50k – $100k, we believe that such price levels would prove unsustainable,” the note said.
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JPMorgan sees bitcoin competing against gold as an “alternative” currency, with an increasing demand for cryptocurrency from millennial investors who prefer “digital gold” over traditional gold.
With a market value of $575 billion, bitcoin would have to surge to $146,000 to match the total private sector investment in gold via ETFs or bars and coins, according to the note.
On Monday, Bitcoin plunged by 17% – its steepest decline since March 2020, after surging to nearly $35,000 on Sunday. It fell back below $30,000 at intraday lows after hitting a record high of $34,792.47 on Sunday.
At 0640GMT on Tuesday, Bitcoin is trading at $30,895.20.
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The high volatility of Bitcoin makes a risky asset to hold on a long term than gold. For it to become as valuable as gold in the long-term, depends on institutions becoming comfortable with the volatility associated with the crypto asset as it occupies a place in their portfolios.
For risk management purposes, a less volatile bitcoin would likely lead to increased adoption among institutions.
“It is thus unrealistic to expect that the allocations to bitcoin by institutional investors will match those of gold without a convergence in volatilities. A convergence in volatilities between bitcoin and gold is unlikely to happen quickly and is in our mind a multi-year process,” JPMorgan explained.
“We believe that the valuation and position backdrop has become a lot more challenging for bitcoin at the beginning of the New Year,” JPMorgan said.
Despite Bitcoin’s Monday struggles, some experts expect a weak dollar, turbulence across traditional financial markets, and a greater shift in business and commerce online to help fuel further gains. A growing number of prominent investors and entrepreneurs including Twitter CEO Jack Dorsey, Paul Tudor Jones have thrown their weight behind Bitcoin, and even Ray Dalio, who had been something of a crypto skeptic.
By: Ifunanya Ikueze