This article is about JPMorgan report Bitcoin safe gold haven and compares bitcoin with gold as a safe haven asset in 8 key factors, according to JPMorgan.
The underlying value of the bitcoin network is not determined by cash flows or dividends, metrics that are commonly used to value shares. Instead, the price of bitcoin is determined solely by the dynamics of supply and demand driven by its buyers and sellers.
"There is nothing inherently valuable that supports the bitcoin network, similar to many of the world's fiat currencies since they left the gold standard," JPMorgan explained in a statement last Friday.
However, the financial institution sees bitcoin technology driving value in its network, mainly its digital scarcity. There will only be 21 million bitcoins once the last one is mined within 118 years. That digital shortage caused its price to rise since the onset of the pandemic as governments around the world significantly increased their debt and money supply.
This dynamic has led some investors to look for alternatives to fiat currencies as a safe haven asset, such as bitcoin itself and gold.
JPMorgan report Bitcoin safe gold haven
"While many are buying cryptocurrencies (chasing in our opinion) because cryptocurrencies are significantly outperforming other asset classes, we believe that the merits of bitcoin will withstand short-term value fluctuations, both in terms of digital scarcity as well as a good store of value," JPMorgan added.
These are the 8 features that help define what a store of value is and how bitcoin compares to physical gold in each of them, according to the investment bank.
"Bitcoin is a non-perishable product that, moreover, cannot be destroyed. It will survive as long as the network survives, which, because it is a decentralized network, makes the crypto asset very difficult to destroy. When you compare gold to bitcoin, both are durable, " JPMorgan explains.
"Bitcoin is particularly easy to store and transport. Large quantities can be sent around the world almost instantly and can be stored on a mobile phone. Gold is much more difficult and expensive to store, transport and secure," says JPMorgan.
Property status of JPMorgan report Bitcoin safe gold haven
3. Expendable property
"Bitcoin is fungible and exchangeable with all other bitcoins. Gold is generally fungible and can easily be seen as a superior asset to diamonds, which can have different qualities and shapes that impact value. That said, gold comes in different measures of purity. In this, cryptocurrency takes the lead, " JPMorgan analyses.
"Bitcoin is divisible up to 8 decimals, i.e., up to 1 / 100,000,000, which today is worth 0.00044 euros. Gold is divisible, but not with the same precision, " says JPMorgan.
"Bitcoin has a finite number of tokens, capped at 21 million, which is estimated to be completed around the year 2140. Gold is difficult to mine although there is also expected to be a finite amount. However, as the price of gold increases, so does the supply," JPMorgan reflects.
Verifiable JPMorgan report Bitcoin safe gold haven disclosed
"Bitcoin is easily verifiable with transactions recorded on the blockchain, which is publicly available for all to see. Gold is also verifiable, but it can be counterfeited, and its purity can be diluted, making the value more questionable," says JPMorgan.
7. Freedom of censorship
"No entity (including developers or miners) has undue influence over a user's bitcoin. As such, bitcoin is resistant to censorship and, because the protocol is decentralized, it is not subject to demand or limitations from large corporations or governments. When it comes to gold, however, governments have restricted both ownership and transfer throughout history," JPMorgan recalls.
"Bitcoin has a very short history as a safe haven asset since it was created in 2009. Gold, on the other hand, has been used for this purpose for at least 5,000 years, and even 7,000, as that was when the first known gold mine was discovered," says JPMorgan.