JPMorgan says bitcoin could get more support than gold if ETF hedging eases

Bitcoin could get more support than gold if investors reduce their ETF hedges, according to JPMorgan analysts.

Bitcoin and gold ETFs saw inflows after the Federal Reserve meeting in late July, when the so-called debasement trade returned, JPMorgan analysts led by Nikolaos Panigirtzoglou said in a Wednesday report. However, this trade has weakened over the past week as inflation-adjusted bond yields rose and the Senate failed to advance the Clarity Act, the analysts said.

Gold ETF demand has recovered more than bitcoin. Gold ETFs have now recovered all the outflows from earlier this year, while bitcoin ETFs have recovered about half, the analysts noted. They said bitcoin ETF demand has also reduced in recent days, leaving more room for a recovery if the news flow improves.

Institutional positioning remains high

Futures positioning in both gold and bitcoin remains high, suggesting institutional investors have supported both assets, the analysts said.

The bigger difference is in ETF short interest. Short interest in BlackRock's iShares Bitcoin Trust ETF, or IBIT, remains close to its highest level this year, the analysts noted. In comparison, short interest in the SPDR Gold Shares ETF, or GLD, is below its historical average, they said.

"This contrast suggests that bitcoin still faces an overall more sceptical positioning backdrop than gold, perhaps due to more elevated hedging demand, despite the recent inflows and build up of futures positioning," the analysts said.

The put-to-call open interest ratio is also higher for IBIT than GLD, which the analysts said points to more hedging around bitcoin.

"While we recognize that other factors might also affect the bitcoin and gold trajectories going forward, from a positioning point of view, the more elevated short interest in the IBIT vs. GLD ETF could create more support for bitcoin vs gold from here if hedging demand is reduced," the analysts concluded.

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