JPMorgan Chase & Co. analysts have released a report suggesting Bitcoin is currently undervalued compared to gold, with a potential upside to $170,000 within the next 6 to 12 months. This projection is based on a comparison of Bitcoin's volatility-adjusted fair value relative to gold, indicating a significant upside for the cryptocurrency.
The analysts, led by Nikolaos Panigirtzoglou, noted that the cryptocurrency market has experienced a correction of approximately 20% from its recent highs. A sharp decline occurred on October 10, triggered by record liquidations in perpetual futures, followed by smaller liquidations on November 3. The November 3 event was linked to the fallout from a $128 million exploit of the Balancer protocol in the decentralized finance (DeFi) sector, raising concerns about protocol security.
Despite these sell-offs, the analysts believe the deleveraging phase in perpetual futures is largely over. The ratio of open interest in Bitcoin perpetual futures to market capitalization has returned to its historical norm within weeks. Similar patterns are visible in Ethereum markets, although the deleveraging has been less pronounced. According to the report, perpetual futures are the most important instruments to watch, and the recent stabilization suggests that deleveraging is likely behind us.
JPMorgan's $170,000 target is based on a comparative model that puts Bitcoin on the same footing as gold. The model presumes that Bitcoin requires about 1.8 times as much risk capital as gold. With private investment in gold totaling approximately $6.2 trillion, Bitcoin's market capitalization would need to grow by nearly 67% from its current $2.1 trillion to match gold. This increase implies a Bitcoin price close to $170,000. The analysts estimate that Bitcoin is currently trading around $68,000 below its volatility-adjusted fair value relative to gold.
The bank's analysis indicates that Bitcoin's volatility ratio versus gold has dropped below 2.0, suggesting that Bitcoin now consumes 1.8 times more risk capital than gold, the lowest since 2020. JPMorgan's previous target for Bitcoin's fair value was $165,000 by the end of the year. The increase to $170,000 reflects gold's strong price momentum and updated volatility measures between the two assets.
The analysts maintain that the next six to twelve months could mark a strong recovery phase for the cryptocurrency market. However, the firm's framework is primarily mechanical and relies on a volatility-adjusted comparison with gold. Market conditions may not follow this linear model, and various factors could alter the trajectory, including gold's performance, changes in central bank policy, and regulatory developments around digital assets.
