JPMorgan Predicts Bitcoin To Outperform Gold If This ETF Game Plays Out
Highlights
- If hedging in the ETF space begins to unwind, JPMorgan believes that will provide additional support for Bitcoin.
- IBIT short interest is holding close to its yearly maximum, and GLD short interest is at a level lower than historical.
- The Bitcoin ETF inflows have only recovered approximately half of the previous outflows, giving investors room to catch up if the market improves.
JPMorgan analysts led by Nikolaos Panigirtzoglou believe that Bitcoin might receive more backing than gold as investors prepare to unwind their ETF hedges. If the hedge demand slows down and market sentiment turns around, Bitcoin’s positioning allows for more room to recover, the analysts wrote.
JPMorgan’s Take On Bitcoin vs. Gold ETF Hedging
The so-called ‘debasement trade’ has stalled in the past week, JPMorgan said. The trade had come back following a late-July Federal Reserve meeting. Inflows then followed for both Bitcoin and gold ETFs.
That trend has since dissipated. The yield on bonds has risen after accounting for inflation while the U.S. Fed also raised rates by 0.25%. The Senate also did not pass the CLARITY Act. These factors have had an impact on the overall trade.
Amid this backdrop, gold has pulled in more ETF buying than Bitcoin. Gold ETFs have now gone back to flowing money into the sector for the year. Bitcoin ETFs have only regained about 50% of those losses.
On the other hand, demand for Bitcoin ETFs has been cooling off over the past few days as well. This may allow for a recovery if developments in the marketplace are more favorable, JPMorgan stated.
IBIT Short Interest Stands Out
Prices for institutional positioning remain high in both markets. Investors continue to have substantial positions in Bitcoin and gold, according to futures positioning.
It looks like the larger gap is in the ETF short interest. The short interest in BlackRock’s iShares Bitcoin Trust ETF (IBIT) stays at one of the highest points in the year.
However, the set up is different with Gold’s SPDR Gold Shares ETF (GLD). It has a short interest below average.
JPMorgan analysts explained, “This contrast suggests that bitcoin still faces an overall more sceptical positioning backdrop than gold, perhaps due to more elevated hedging demand, despite the recent inflows and build up of futures positioning.”
Additionally, options positioning is hinting at increasing hedging around Bitcoin. IBIT has a higher put to call open interest ratio than that of GLD, notes JPMorgan.
That may be significant when investors move away from positions that are considered safe investments.
“While we recognize that other factors might also affect the bitcoin and gold trajectories going forward, from a positioning point of view, the more elevated short interest in the IBIT vs. GLD ETF could create more support for bitcoin vs gold from here if hedging demand is reduced,” JPMorgan analysts concluded.
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