It's been a rough go for Bitcoin (BTC 0.60%), the world's largest cryptocurrency by market cap, which is now down nearly 22% on the year, despite a strong rally on Feb. 6.
Investors seem to be questioning whether Bitcoin is truly a form of digital Gold, with its finite supply of 21 million tokens, and whether it can therefore serve as a hedge against currency debasement and inflation.
However, for those who follow Bitcoin and crypto, big sell-offs and steep bear markets should be nothing new, as they tend to occur every few years. Despite the big sell-off and investors asking serious questions, strategists at JPMorgan Chase see a compelling long-term opportunity that could make Bitcoin even more attractive than gold.
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Bitcoin has relatively low volatility compared to gold
Gold has surged as investors have worried about a lower dollar from years of intense money printing and a mounting pile of U.S. government debt. Furthermore, there have been many geopolitical concerns and concerns about the Federal Reserve's independence. Bitcoin seemed to follow gold higher last year, but this year has decoupled from the precious metal thus far, although Gold (GLD 1.53%) has also struggled as of late.
Bitcoin Price data by YCharts
"[Cryptocurrencies] came under further pressure over the past week as risk assets and in particular tech came under pressure and as gold and silver, the other perceived hedges to a catastrophic scenario, saw a sharp correction," a team of JPMorgan analysts led by Nikolaos Panigirtzoglou wrote in a research note published yesterday.
Interestingly, Panigirtzoglou also noted that while gold has risen much more than Bitcoin since October, it has done so with much higher volatility, making Bitcoin "even more attractive compared to gold."
Panigirtzoglou theorizes that if Bitcoin's volatility were to equal gold's, its price would soar to $266,000 per token, implying significant upside from Bitcoin's current price of below $69,000 per token, as of this writing. Panigirtzoglou does not see this materializing in the near term, but it shows how Bitcoin could still be a potential long-term safe haven.
The crux of the digital gold debate is that Bitcoin often trades like a high-beta tech stock. Software stocks have gotten crushed, and that has spilled into Bitcoin and crypto.
While things seem difficult, I do think investors should remember that Bitcoin has survived multiple drawdowns of over 90% only to make new highs each time, so I think the token can bounce back over the long term. The verdict on digital gold remains to be seen, but Bitcoin has strong potential to serve as a unique diversifier in a multi-asset portfolio, so it's worth allocating at least a little capital to it.
