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Is Bitcoin Digital Gold? SkyBridge Says Yes, JPMorgan Says No as Market Dynamics Have Changed

Lucas Cacioli   Jan 25, 2021 03:30 4 Min Read


Institutional investment in Bitcoin has many convinced that the pioneer cryptocurrency has already succeeded in its transition into a new form of digital gold—but the debate continues to rage at the highest levels of financial advisory.

Is Bitcoin Digital Gold? SkyBridge Says Yes, JPMorgan Says No as Market Dynamics Have Changed

As inflationary monetary economics are coming into focus with zero percent interest rates or even negative interest rates throughout the pandemic and the onslaught of central bank money printing many are looking to Bitcoin as an inflationary hedge and a reliable store of wealth.

This Bitcoin defensive hedge narrative has at least broken through with Anthony Scaramucci and fellow SkyBridge executives who recently argued that Bitcoin has become a viable option for long-term investors. The SkyBridge executives claim that holding Bitcoin is far less risky today than it was a few years ago when regulations and infrastructure were still underdeveloped.

Meanwhile, JPMorgan analysts have recently said that while the Bitcoin price skyrocketed last year on renewed Wall Street interest—Bitcoin and crypto is still an unreliable defensive hedge. The analysts make the case that while Bitcoin may have been on this initial safe haven trajectory, market dynamics have changed so much in recent months that BTC could not be expected to serve as a reliable store of value in times of crisis.

Scaramucci and SkyBridge Believe in Bitcoin

Head of SkyBridge Capital and former White House communications director—Anthony Scaramucci believes that Bitcoin’s status as an inflationary hedge is steadily increasing as governments are ramping up crypto regulation and addressing many of the risks associated with BTC.

Scaramucci and fellow SkyBridge executive Brett Messing argued in an opinion piece on CNN that holding Bitcoin is safer today than it was just a few years ago when digital asset regulations and infrastructure were still severely underdeveloped.

In reference to the decision by the Office of the Comptroller of Currency (OCC) to allow banks to facilitate cryptocurrency services, the SkyBridge executives argued that Bitcoin’s spectacular growth has forced governments to take a more serious approach to cryptocurrency’s legitimacy and address the risks associate with digital assets.

In the opinion piece, the SkyBridge executives argued, “…increased regulations, improved infrastructure and access to financial institutions, like Fidelity, that hold investors' money have made bitcoin investments as safe as owning bonds and commodities like gold, which are also used to balance portfolios.”

Institutional capital flowing into Bitcoin was a major catalyst behind the crypto’s 300% rally in 2020, which peaked at a  new all-time high near $42,000 in early January. SkyBridge reportedly invested in Bitcoin during November and December, allowing the firm to accumulate a large position in the BTC just weeks before its parabolic bull run. At the time that the SkyBridge Bitcoin Fund LP fund was launched, in the first week of January, the firm claimed its BTC exposure was worth over $300 million. The SkyBridge Bitcoin hedge fund has Fidelity serving as custodian and Ernst & Young handling its auditing.

JPMorgan thinks BTC Market Dynamics Have Changed

According to JP Morgan analysts, although Bitcoin has been used heavily as a hedge by institutional and retail investors in 2020, it may not be the ideal way to secure one’s wealth and should therefore not be the defensive market hedge of choice.

Per market experts, Bitcoin’s popularity among retail investors has served to increase the cryptocurrency’s correlation with the rest of the market. This makes the asset an unreliable defensive hedge, especially when the market experiences a crash. JP Morgan strategists John Normand and Federico Manicardi said:

“Bitcoin is the least reliable hedge during periods of acute market stress. The mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage.”

The strategists explained that while Bitcoin may be used to protect against the uncertainty surrounding traditional financial systems and fiat currencies, it is unlikely that BTC will behave like a traditional defensive asset, such as gold, anytime soon.

Should investors diversify their portfolio with Bitcoin?

When it comes to comparing a new asset class with a traditional one, investors have a tendency to ask, “Is it really comparable?” Reportedly, asset portfolio managers have started to recognize the value of Bitcoin. While it has been previously considered a risk to hold the asset in one’s portfolio, the underlying narrative surrounding BTC has quickly shifted to it being a career risk to not have Bitcoin in one’s portfolio as an investment expert. Bitcoin has been slowly but surely gaining traction, as institutional support has backed the mainstream cryptocurrency and led the Bitcoin bull run, the digital asset’s full potential has yet to be uncovered.

However, as its full potential has yet to be uncovered, it has been speculated by some that Bitcoin is currently in bubble territory, threatening to plunge drastically in value. The sentiments of market analysts seem to be divided on that level. JPMorgan analysts, Normand and Manicardi commented:

“Whether cryptocurrencies are judged eventually as a financial innovation or a speculative bubble, Bitcoin has already achieved the fastest-ever price appreciation of any must-have asset.”

The Bitcoin price is currently trading at around $32,682.20 and is up 2.36% in the last 24hrs according to CoinMarketCap.


Image source: Shutterstock

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