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Why Gold Could Suffer For Years… Because Of Bitcoin

Why Gold Could Suffer For Years… Because Of Bitcoin

The gold market could see the transfer of billions in cash in the coming years as institutional investors become increasingly attracted to bitcoin.

Bitcoin has been on a wild ride this year. 

The cryptocurrency has surged more than 155% so far this year, notching a new all-time high earlier this month of $19,920.53.

While the price of bitcoin has backed off of that record this week, the digital coin is still attracting institutional interest.

Massachusetts Mutual Life Insurance Co. became the latest institutional investor to dabble in digital assets on Thursday, announcing that it has purchased $100 million in bitcoin for its general investment fund.

MassMutual said the investment in bitcoin represents 0.04% of the general investment account of nearly $235 billion as of September 30.

“We see this initial investment as a first step, and like any investment, may explore future opportunities,” MassMutual spokeswoman Chelsea Haraty said.

The 169-year-old MassMutual wasn’t the only big name making waves in the digital coin space this week with Fidelity Digital Assets announcing that it will allow its institutional customers to pledge bitcoin as collateral against cash loans on Wednesday, and MicroStrategy (NASDAQ: MSTR) saying Monday that it plans to offer $400 million of convertible bonds in order to buy more bitcoin. 

And as mainstream finance names venture further into the cryptocurrency space, JPMorgan (NYSE: JPM) said this week that the move is coming at the expense of gold. 

Since October, money has poured out of gold and into bitcoin funds, a trend that the bank’s quantitative strategists including Nikolaos Panigirtzoglou say is only going to continue in the long run as more institutional investors take positions in cryptocurrencies.

JPMorgan is one of just a few big firms on Wall Street that’s expecting a major shift in gold and crypto markets as digital coins become increasingly popular as an asset class. For precious metals bulls, the trend poses an issue as even a small reallocation from gold into crypto could send waves through the precious metals market.

“The adoption of bitcoin by institutional investors has only begun, while for gold its adoption by institutional investors is very advanced,” the JPMorgan strategists wrote. 

According to JPMorgan, ETFs backed by gold have seen outflows of $7 billion since October, while the Grayscale Bitcoin Trust ETF (GBTC), which is popular with institutions, has seen inflows in the same timeframe of nearly $2 billion. The GBTC has risen more than 162% this year.

Right now, JPMorgan calculates that bitcoin accounts for just 0.18% of family office assets, while gold ETFs account for 3.3%. Should the needle continue to tilt toward bitcoin, it would represent the transfer of billions in cash.

“If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years,” the strategists wrote.

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