Large Investors Believe It Is a No-Brainer

Gold or Bitcoin? Large Investors Believe It Is a No-Brainer.

11 May 2023

So Bitcoin or gold? Bitcoin may be the gold of the future, but institutional investors prefer the real thing for the time being.

According to a Thursday report by J.P. Morgan analysts, bank failures that began in March prompted professional traders to increase their exposure to gold futures while decreasing their involvement in crypto.

Bullion is viewed as a hedge against future disasters, but it is less appealing when interest rates are high because it does not pay interest. And, although the bank crisis makes a wider financial disaster appear more likely, it also enhances the probability that the Federal Reserve would halt or possibly lower interest rates.

Bitcoin does not have a track record, but supporters believe it has similar characteristics to gold, such as restricted supply and minimal connection with equities, that might make it a digital alternative to gold. Since regional banks began to falter in early March, the token’s value has increased by around 44% to $29,387.

However, when it comes to deciding which asset to rely on, Bitcoin or gold, big and small investors appear to have separated, according to J.P. Morgan.

Money managers increased their exposure to gold futures significantly between March and early May, resulting in a net long position of roughly $20 billion. Meanwhile, the quantity of gold held in exchange-traded funds, which serves as a proxy for retail gold interest, increased just a little.

Bitcoin investor interest has shifted oppositely. J.P. Morgan’s analysis of Bitcoin futures data suggests that money managers did not get into the tokens even as regular investors drove prices upward.

There are several reasons why institutions may be apprehensive about using Bitcoin as a hedge against disaster. For one thing, Bitcoin has only been operating for 14 years and has never been involved in a major financial crisis. And, while gold prices might be unpredictable, Bitcoin outperforms the precious metal. Despite the increase, prices are still down more than 50% from their peak in November 2021.

Furthermore, the experts point out that the United States is in the middle of a regulatory crackdown on crypto assets, with unpredictable ramifications for token pricing. Regulators blamed Silvergate Capital Corp. (ticker: SI), and Signature Bank (SBNY) collapsed in part on their substantial engagement with crypto businesses, and federal agencies have advised other banks not to deal too much with crypto.

But while Bitcoin is in Uncle Sam’s crosshairs, imagining it as a storm shelter is difficult.

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