Bitcoin may be the gold of the future, but for now institutional investors prefer the real thing.
Bank failures that began in March spurred professional traders to significantly increase their exposure to gold futures, according to a note Thursday by JP Morgan analysts.
Bullion is seen as a hedge against potential catastrophe, but it is not attractive when interest rates are high because it does not pay interest. A banking crisis not only makes a broader financial crisis look more real, but it also makes it more likely that the Federal Reserve will pause or even cut rates.
Bitcoin has no historical track record, but proponents say it has similar characteristics, such as limited supply and low correlation with stocks, making it a potential digital alternative to gold. I believe there is. The price of the token has surged about 44% to $29,387 for him since the local bank began teetering in early March.
But investors big and small look different when it comes to choosing which assets to rely on, JP Morgan said.
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From March to early May, money managers significantly increased their exposure to gold futures, creating net long positions of approximately $20 billion. Meanwhile, gold holdings in exchange-traded funds (ETFs), which measure retail gold rates, have increased only marginally.
Investor interest in Bitcoin is going in the opposite direction. Bitcoin futures data analyzed by JP Morgan appears to show that money managers didn’t buy the token even though retail investors pushed the price higher.
There are myriad reasons why financial institutions are reluctant to use Bitcoin as a hedge against catastrophe. For one, Bitcoin has only been around for 14 years and has never faced a serious banking crisis. And while the price of gold can fluctuate, bitcoin puts the precious metal to shame.Despite the surge, the price is down more than 50% from its peak in November 2021. .
But more than that, analysts point out that the US is in the midst of a regulatory crackdown on crypto assets, with an uncertain impact on token prices.Regulators blame Silvergate Capital for failure
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(Ticker: SI) and Signing Banks
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(SBNY) has been partly involved in heavy business with cryptocurrency companies, and federal agencies have warned other banks not to spend too much cryptocurrency.
While Bitcoin is in Uncle Sam’s sight, it’s hard to see it as a refuge from the storm.
Please contact Joe Light at joe.light@barrons.com.
