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An uncanny chart from JPMorgan shows Bitcoin acting a lot like gold

May 27, 2022, 9:00 AM UTC

For thousands of years, cultures around the world, from the Incas to the Egyptians, have considered gold to be a store of value due to its unique properties and relative scarcity.

But these days, the element is facing some competition from a new kid on the block—Bitcoin.

The cryptocurrency, often described by its supporters as “digital gold,” holds some of the same characteristics that have made gold one of the most important capital protectors in history.

It’s difficult to mine, it’s scarce, and perhaps most importantly, it has a devoted following that believes it is worth something.

But lately, Bitcoin hasn’t been acting like gold at all. In fact, it’s been acting more like a tech stock. The digital asset’s price has fallen more than 38% year to date, while gold prices have increased 3% over the same period. It also continues to show a correlation to the tech-heavy Nasdaq, which is down 25% since the start of the year.

Still, the recent downturn in Bitcoin hasn’t stopped its supporters from buying the cryptocurrency, even if it takes a margin loan to do it. And now, Bitcoin is getting some much-needed support from some big names on Wall Street, including JPMorgan Chase.

The investment bank’s strategists, led by Nikolaos Panigirtzoglou, said in a Wednesday note that they believe Bitcoin has “significant upside potential” after this year’s downturn. 

Panigirtzoglou and his team argue that Bitcoin could end up fulfilling the dreams of many of its supporters by becoming an “alternative” currency similar to gold.

“After the Lehman crisis, the role of an ‘alternative’ currency was played by gold,” the strategists wrote. “After the virus crisis, this role was played by both bitcoin and gold.” 

JPMorgan argues that because Bitcoin survived “the long winter” of 2018, when prices dropped more than 70%, institutional investors now have “increased confidence” that there will be a market for the digital currency moving forward.

The total market cap of Bitcoin and gold could eventually equalize as they serve the same purpose, the investment bank’s strategists added; however, because volatility is so critical when it comes to institutional investors’ risk management, the market cap of Bitcoin held by institutions likely won’t reach gold’s level until its volatility subsides.

The good news for Bitcoin bulls? That’s already happening. (See the chart below.)

Of course, Bitcoin always has its detractors. Economist Nouriel Roubini, an NYU professor known as Dr. Doom for his pessimistic views, has called Bitcoin “the mother of all bubbles” and “the most overhyped—and least useful—technology in human history.” He argues that because it’s not backed by anything, it represents pure market speculation.

Now, though, oddly enough, Roubini is working on his own digital currency, the “United Sovereign Governance Gold Optimized Dollar,” or USG, which he calls tokenized dollar replacement. 

The professor is working with Dubai-based Atlas Capital Team LP, which he cofounded two years ago, to create what he considers to be a more robust “global store of value.

Similar to Bitcoiners, he argues that the U.S. government “prints too much money,” and that will ultimately lead to currency devaluation. As a result, he says, there’s a need for “something akin to a substitute for Treasuries.” Roubini’s token, however, will be backed by real estate holdings, gold, and U.S. government bonds. 

Whether a token like Roubini’s will begin to flourish and crowd out Bitcoin is up for debate, but clearly institutions and economists are changing their views about the potential for digital assets in general, and that could speed up adoption. 

Some experts warn that cryptocurrencies are bound to continue their descent, however. Jay Hatfield, the chief investment officer of Infrastructure Capital Management, told Fortune that crypto promoters may face regulation sooner rather than later, leading to the downfall of the whole industry.

“Since Article One of the Constitution clearly bars the creation of competing currencies, crypto tokens could be regulated as unregistered securities, resulting in substantial liability for crypto promoters,” he said. “In fact, the EU securities regulator this morning called for investor protection regulations to be finalized rapidly.”

Hatfield expects Bitcoin to fall to below $20,000 this year.