Bitcoin above $51,000 is unsustainable unless volatility subsides, says JPMorgan

Bitcoin 1
  • Bitcoin’s current price above $51,000 is “unsustainable” unless volatility subsides, JPMorgan said in a note. 
  • Strategists estimate a large portion of recent flows into the token have been driven by speculation. 
  • If the token’s volatility converges to that of gold, bitcoin could reach $146,000, they added.
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Bitcoin’s current price is “unsustainable” unless the cryptocurrency’s volatility dies down, according to JPMorgan.

The cryptocurrency flew to new heights above $52,800 on Friday morning, bringing its year-to-date gains to more than 80% as the breakneck rally powers ahead. Just one year ago, bitcoin traded around $10,000.

The cryptocurrency has achieved the fastest-ever price appreciation of any “must-have asset” to which it is often compared, like Gold in the 1970’s and internet stocks in the 1990’s, noted JPMorgan. But the rally has left wary investors reminded of the mania in 2017 that ended in a steep drop. 

Strategists led by Nikolaos Panigirtzoglou wrote in Tuesday note that unless bitcoin’s price swings subside “quickly from here,” the current rally could end in disappointment. 

The strategists estimate that $11 billion of institutional money has flown into bitcoin since the end of September, but they say  a large portion of that has been dominated by “speculative investors seeking to front run other more real-money institutional investors.”

Despite the firm’s short-term caution, JPMorgan sees bitcoin’s price growing significantly higher in the long run.

If bitcoin’s volatility converges to that of gold, JPMorgan has a “theoretical price target” of $146,000. However the strategists said this convergence would be a “multi-year process” and would also depend on bitcoin ownership tilting more institutional and less retail over the coming years.

“For the bitcoin market cap to match the total private sector investment in gold via ETFs or bars and coins, we estimate that mechanically bitcoin prices would need to rise to $146k,” JPMorgan added. 

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Bitcoin jumps to a new high above $51,700, extending its year-to-date rally to 78%

A visual representation of the digital Cryptocurrency, Bitcoin is on display in front of the Bitcoin course's graph
  • The bitcoin price hit a new high above $51,700 after breaking the $50,000 mark on Tuesday.
  • Yet JPMorgan said the rally looks unsustainable unless bitcoin’s volatility falls.
  • Bitcoin’s market capitalization has skyrocketed to close to $1 trillion.
  • Visit the Business section of Insider for more stories.

The bitcoin price hit a record high above $51,700 on Wednesday after soaring past $50,000 for the first time the previous day. The surge brought the biggest cryptocurrency’s market capitalization to close to $1 trillion.

The bitcoin price (BTC) has rocketed around 75% in 2021, continuing an astonishing rally after dipping below $4,000 in March 2020. Its market cap has grown by more than $700 billion just since the end of September.

Bitcoin was up 4.6%, to $50,817.80, as of 9:40 a.m. ET on Wednesday, having earlier hit an intraday record of $51,719.11.

Analysts say record amounts of monetary and fiscal stimulus are boosting the price by flooding markets with cash and creating fears about inflation and currency debasement.

Tesla’s announcement earlier in February that it had snapped up $1.5 billion of bitcoin in January has powered the latest leg of the rally. Interest from big Wall Street names such as BlackRock, BNY Mellon and Mastercard has also given cryptocurrencies legitimacy.

However, analysts at JPMorgan on Tuesday said that the high volatility of bitcoin remained a problem for the digital asset.

They said the cryptocurrency was far more volatile than gold, which many crypto enthusiasts are hoping bitcoin can replace as a store of value in investors’ portfolios. One measure, called 3-month realized volatility, was 87% for bitcoin compared to 16% for gold, they said.

“In our opinion, unless bitcoin volatility subsides quickly from here, its current price… looks unsustainable,” the analysts said.

JPMorgan also said that its analysis had showed the rapid rise in bitcoin over the last 5 months “has taken place with relatively little institutional flows.”

“Some pickup in real money flows would likely be needed to sustain current prices in the absence of a re-acceleration of the retail flow,” the note said.

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