Bitcoin’s price has surged about 44% to $29,387 since regional banks started to teeter in early March.
Dreamstime.comBitcoin might be the gold of the future, but for now institutional investors prefer the genuine article.
Bank failures that began in March spurred professional traders to add heavily to their exposure to gold futures even as they pulled back on engaging with crypto, according to a Thursday note by J.P. Morgan analysts.
Bullion is seen as a hedge against potential catastrophe, but since it doesn’t pay interest, it is less attractive when rates are high. And while the bank crisis not only makes a broad financial disaster look more plausible, it also increases the likelihood the Federal Reserve could pause hikes or even cut rates.
Bitcoin doesn’t have a historical track record, but proponents think it has similar properties, such as a limited supply and low correlation with stocks, that could make it a digital replacement for gold. The token’s price has surged about 44% to $29,387 since regional banks started to teeter in early March.
But when choosing which asset to lean on, big and small investors seem to have diverged, J.P. Morgan said.
Between March and early May, money managers added heavily to their exposure to gold futures, building a net long position of around $20 billion. Meanwhile, the amount of gold held in exchange-traded funds, a proxy for retail gold interest, rose only slightly.
Investor interest in Bitcoin has gone the opposite direction. Bitcoin futures data analyzed by J.P. Morgan seems to show money managers didn’t buy into the tokens even as retail investors drove prices higher.
There are myriad reasons why institutions might be hesitant to seize on Bitcoin as a hedge against catastrophe. For one, Bitcoin has only been around for 14 years and has never faced a severe banking crisis. And while gold prices can be volatile, Bitcoin puts the precious metal to shame. Even with the surge, prices are still down more than 50% from their November 2021 peak.
But more than that, the analysts note, the U.S. is in the midst of a regulatory crackdown on crypto assets with uncertain repercussions for token prices. Regulators have blamed the failures of Silvergate CapitalCorp. (ticker: SI) and Signature Bank (SBNY) in part on their heavy business with crypto companies, and federal agencies have warned other banks against doing too much with crypto.
It is hard to see Bitcoin as a shelter from the storm while it is in the sights of Uncle Sam.
Write to Joe Light at joe.light@barrons.com
