JPMorgan Sees Bitcoin at $38,000. But Here’s Why $50,000 Isn’t Out of Reach.

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The momentum that has carried

Bitcoin
and other digital assets higher in recent days appears to have stalled. 

Bets on where the leading cryptocurrency is heading next are piling in. Investment bank Stifel sees $10,000 as a possibility, while bullish traders are eyeing $50,000 as just the next milestone on the road to $100,000.

The biggest crypto was down less than 1% over the last 24 hours to just shy of $44,000, according to data from CoinDesk. Its rally to that level came Monday and Tuesday, after it surged from near $36,000 to $41,000 at the end of last week. While it looks to have left the year-to-date low of $33,000 behind, Bitcoin remains well off November’s all-time high of $68,990, and below the $47,000 level reached on Jan. 1.

Now, a team of market strategists from

JPMorgan

Chase have weighed in. They see Bitcoin at $38,000, though there’s a case to be made that $50,000 is within reach.

The bank’s analysis is technical in nature, and is based on the volatility ratio between Bitcoin and gold; Bitcoin is often touted as “digital gold,” and the bullish case for Bitcoin includes the proposition that the digital asset will eventually overtake the precious metal as a safe store of value with little correlation to wider financial markets.

JPMorgan had previously projected that the Bitcoin to gold volatility ratio would fall to 2 times later this year, from 5 times, which would support prices. Strategists at the bank said that “seems unrealistic” and they now see the ratio declining to 4 times.

“Our fair value for Bitcoin based on a volatility ratio of Bitcoin to gold of around 4x would be $38,000, modestly below its current price,” a team led by Nikolaos Panigirtzoglou said in a report Tuesday. “In an upside scenario where there is more normalization in vol. to around 3x, the fair value would be around $50,000.”

There is little doubt that Bitcoin and other digital assets face headwinds this year. Cryptos have apparently become correlated with other risk-sensitive investments, like high-growth stocks in the technology sector. Bitcoin followed tech stocks downward last month as the

Nasdaq
—a proxy for U.S.-listed tech—went into correction territory.

In theory, Bitcoin and its peers should trade independently from mainstream financial markets. However, like with equities, the prospect of rising interest rates and less liquidity as a result of central bank policy has rocked the boat. The coming normalization of monetary policy “represents a potential headwind for both traditional and alternative asset classes,” said Panigirtzoglou and his team.

“2022 is likely to be a more challenging and more mean-reverting year for digital assets,” the JPMorgan strategists said. “We note the biggest challenge for Bitcoin going forward is its volatility and the boom and bust cycles that hinder further institutional adoption.” 

But there is reason for crypto investors to remain hopeful in the long-term.

“Cryptocurrencies and digital assets more broadly are an emerging asset class and thus on a multi-year structural uptrend,” said the team at the bank. “This naturally implies a higher growth for the universe of digital assets over the coming years relative to other alternative asset classes.”

That being said, JPMorgan believes growth is unlikely to be concentrated on Bitcoin, or even its smaller peer

Ether,
which is the token underpinning the Ethereum blockchain network.

“Growth does not necessarily need to come from continuous price appreciation of existing cryptocurrencies,” said Panigirtzoglou the other strategists. “In our mind it is more likely to come from the expansion of the universe of digital assets.”

Write to Jack Denton at jack.denton@dowjones.com