Recently, JPMorgan CEO Jamie Dimon likened Bitcoin to fraud. However, the American multinational banking company suddenly changed its stance and now sees the cryptocurrency in a positive light. The company even went as far as saying that it can replace gold as a hedge to an economic slump.
JPMorgan analyst Nikolaos Panigirtzoglou believes that Bitcoin has the potential to become an emerging asset class given the fact that the Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME), two of the world’s biggest options exchanges, will soon list Bitcoin futures by mid-December.
“The prospective launch of Bitcoin futures contracts by established exchanges, in particular, has the potential to add legitimacy and thus increase the appeal of the cryptocurrency market to both retail and institutional investors,” said Panigirtzoglou.
He further asserted that as worldwide support for the cryptocurrency as a store value continues to increase, so will its value and market valuation.
With rising economic and geopolitical concerns, Bitcoin supporters are demonstrating to traditional investors the ability of their cryptocurrency, which hit an all time high of over £10,300 per coin in December. According to supporters of Bitcoin, the rising popularity of the cryptocurrency is enough to rival gold as a safe-haven investment.
“When the existing money system has problems, people turn to Bitcoin sort of like people used to go to gold in the old days,” said the co-founder and CEO of Bitcoin exchange BTCC, Bobby Lee. “Gold is very attractive in the old days. It’s something physical, tangible…(but) you can’t actually buy and sell gold at night on your desk, at home. With Bitcoin, you could do that. It trades 24/7.”
However, other economists disagree with JP Morgan’s sentiments. Forbes writer Frank Holmes states that Bitcoin won’t be able to replace gold easily due to the fact that cryptocurrencies are merely forms of currency, whereas gold has many other time-tested applications from jewellery to electronics. Another reason is that Bitcoin isn’t a tangible asset so when its digital addresses have been misplaced by their owner, they’re lost forever.
In addition, Bitcoin’s classification is unclear. A document produced by investment manager ARK Invest and exchange operator Coinbase said that Bitcoin belongs to its own asset class. Gold, on the other hand, is a commodity. Historically, people turn to commodities, particularly gold, when currencies fail. FXCM states that even in times of peace and prosperity, gold has always remained at the forefront of many investor portfolios. In a failing economy, Bitcoin naysayers suggest that the cryptocurrency won’t be able to act as a hedge simply because they’re like fiat currency – no other use apart from trading goods and services.
Supporters of Bitcoin, however, say that the cryptocurrency has revolutionised how hedges work. According to them, people may not understand how the blockchain technology works but they do make transactions safer.
Current stats: Bitcoin VS gold
Historically, Bitcoin has not yet taken over gold in terms of value as well as quantity. However, the cryptocurrency has the potential to match or even rise above gold given recent trends and its current popularity. As it stands, the total value of Bitcoin and other cryptocurrencies is now over £220 billion, which is nothing compared to the £1.10 trillion for all of the gold being held outside of the central banks. Some experts believe that the Bitcoin market could reach £3.7 trillion by 2022. However, if time will be taken into consideration, and if Bitcoin’s surging popularity continues in the next few years, it will be able to easily surpass gold’s achievements. After all, Bitcoin isn’t even 20 years old. Gold, on the other hand, was used as a currency as early as 700 BC.
Only time will tell if Bitcoin can replace gold as a hedge to a failing economy. However, given the current status of the economy, and the consumer’s response towards Bitcoin, JP Morgan’s assertion may not be as farfetched as it seems.