Daily Market Recap - BTCUSD Extends gains on Easter Monday, JPM sets ambitious long term target

Bitcoin corrected sharply on Saturday from around $59,500 on Saturday morning to $56,700 on Saturday evening, a drop of 5% in about 10 hours. The crypto coin attempted a rebound on Sunday, though without much conviction, as BTCUSD traded closer to $57,000 this Monday morning.

Technical analysis depicted a rather unfavorable context for BTCUSD in the run-up to todays session. Indeed, Bitcoin broke below a long-term uptrend line on March 22, before posting a rebound, which was then blocked on March 30 by the old broken uptrend line, thus appeared to confirm the break.

Despite Bitcoin seemingly condemned to a bearish reversal, late trading activity pushed the crypto asset back towards the $59,000 mark. A move above $60,000 would likely reignite some steam in the bull engine, though only trade through the old uptrend line closer to $61,500 would justify a bullish continuation,

On the other hand, beyond this charting context which for the moment still suggests caution as we approach the all-important $60,000 mark, some influential voices continue to post ambitious forecasts for Bitcoin. This is particularly true of JP Morgan, which recently expressed its views on Bitcoin in an analysis.

JP Morgan posts $130,000 target for BTC/USD

In a note published at the end of last week, the JP Morgan bank indeed estimated that Bitcoin could quickly reach new records, thanks to a decrease in its volatility.

The banknotes that bitcoin's price volatility has decreased in recent weeks, making the cryptocurrency more acceptable to institutions seeking low-correlation assets (with stock markets) to better diversify investment portfolios.

Institutional adoption of bitcoin is “likely to stem from the recent shift in bitcoin's correlation structure relative to traditional asset classes,” the bank says.

It explains that one of the main obstacles to institutional adoption of the cryptocurrency has been its significantly high volatility, which exploded in 2020 when bitcoin more than tripled. From a risk management perspective, the high volatility “acts as a headwind to greater institutional adoption,” said JPMorgan.

One asset that has been negatively impacted by bitcoin's growing favourability among institutions is gold, which has seen $20 billion in outflows since mid-October, compared to $7 billion in inflows into bitcoin over the same period, according to the bank.

“Given the importance of financial investment in gold, any crowding out of gold as an 'alternative' currency implies a sharp rise in bitcoin over the long term,” JPMorgan said.

As such, the bank is posting a long-term price target of $130,000, which represents a potential rise of more than 120% from current levels.

“Mechanically, the price of bitcoin would need to reach $130,000 to match the total private sector investment in gold,” JPMorgan said.

Recall that JPMorgan previously posted a long-term price target of $146,000 for bitcoin, but that target has been revised downward as gold prices have recently fallen from a peak of $1,900 per troy ounce.

“The decline in gold prices has mechanically reduced the estimated upside potential for bitcoin as a digital alternative to traditional gold, assuming an equalization with the weight of gold in the portfolio,” the bank explained.

JPMorgan's long-term price target for bitcoin is based on the idea that bitcoin's volatility will converge with gold's. However, over the past 3 months, bitcoin's volatility has exceeded 80%, compared to just over 15% for gold.

(Chart Source: Tradingview 05.04.2021)

“Convergence of volatilities between bitcoin and gold is unlikely to happen quickly and is likely to be a multi-year process. This implies that the theoretical goal of a bitcoin price above $130,000 should be considered a long-term goal,” JPMorgan said.

Disclaimer: This material has been created for information purposes only. All views expressed in this document are my own and do not necessarily represent the opinions of any entity.