Increased appetite from institutional investors for bitcoin is set to boost inflows to funds that give traders exposure to the red-hot cryptocurrency — to the detriment of gold , according to strategists at J.P. Morgan . Bitcoin has been on a tear this year, rallying more than 150% year-to-date and outperforming a host of major assets including U.S. stock indexes like the Dow Jones Industrial Average and gold. Cryptocurrency enthusiasts say it's down to unprecedented stimulus from the U.S. and other global governments. Investors often look to gold as a so-called "safe haven" in times of economic turbulence, to hedge against potential losses in the event of a market downturn. Several bitcoin bulls have described the virtual currency as "digital gold," given its strong performance in 2020 despite the Covid-19 crisis. In a research note Tuesday, J.P. Morgan strategists noted that digital asset manager Grayscale's Bitcoin Trust saw an inflow of nearly $2 billion, while gold exchange-traded funds bled more than $7 billion. They added the near-term outlook for bitcoin was "skewed to the downside" but that the medium- to longer-term looked more positive. That's because institutional investors like mutual funds still have little allocation to bitcoin, J.P. Morgan said, adding those that do — predominantly high-net-worth individuals and family offices — typically have exposure of just 1-3%. "The adoption of bitcoin by institutional investors has only began, while for gold its adoption by institutional investors is very advanced," the investment bank said. "If this medium to longer term thesis proves right, the price of gold would suffer from a structural flow headwind over the coming years." As for how to trade the trend, J.P. Morgan offered some advice. "Buy 1 unit of the Grayscale Bitcoin Trust and Sell 3 units of GLD ETF to position for a long term outperformance of bitcoin vs gold on a vol (3:1) adjusted basis." Bitcoin was last trading around 2% lower Tuesday, at $18,385. The world's most-valuable cryptocurrency recently topped $19,800, hitting a fresh all-time high three years after hitting its previous record. The digital asset is known for its wildly volatile price swings. "What's really interesting in the J.P. Morgan report is, they're talking about the Grayscale Bitcoin Trust and looking at it as a proxy for investment in the bitcoin ecosystem," Michael Sonnenshein, managing director of Grayscale Investments, told CNBC. "It's of no coincidence that we are seeing the bitcoin price hit all-time highs and strong inflows into the Grayscale Bitcoin Trust investment vehicle happening at exactly the same time we're seeing some of the largest outflows on record in gold-based products." Still, J.P. Morgan warned investors should brace for a short-term slide in bitcoin's price, as "bitcoin looks rather overbought vs. gold from a momentum traders positioning point of view."
