After major deleveraging, bitcoin now has 'significant upside' and looks more attractive than gold, claims JPMorgan

By Jules Rimmer

Deleveraging in bitcoin futures was responsible for its sheer decline, but on a volatility-adjusted basis, it now seems cheaper than gold

Bitcoin screens cheap to gold on "a mechanical basis" after its fall in October.

On Oct. 5, bitcoin (BTCUSD) touched an all-time high of $126,000. Before the end of the month, it had slumped more than 20%. Earlier this week, it briefly dipped below $100,000. Such was the extent of the collapse that bitcoin now looks very cheap to gold (GC00) on a volatility-adjusted basis. That led one JPMorgan strategist to make the argument that "This mechanical exercise thus implies significant upside for bitcoin over the next 6-12 months."

Global markets strategist Nikolaos Panigirtzoglou explained that the reason for bitcoin's stunning degringolade was twofold: first, a massive liquidation in perpetual futures ( a derivative contract allowing speculators to bet on the price of an asset with no fixed expiration date); second, the fallout from a well-publicized crypto-asset theft of $128 million from decentralized-finance protocol Balancer. This scandal raised more concerns about security protocols in the world of crypto investment.

Panigirtzoglou illustrated how rapid the deleveraging in bitcoin futures was, explaining that the ratio of open interest in perpetuals to the bitcoin market capitalization is a suitable proxy for investors' leverage in the asset. After the recent correction, this ratio is back at its average since January 2024.

Ratio of bitcoin perpetual futures open interest to bitcoin market cap

There have also been redemptions from some bitcoin exchange-traded funds IBIT, but these have been relatively modest compared with recent inflows. Panigirtzoglou said that, right now, deleveraging in perpetual futures is mostly behind us, but following this indicator is the best guide to the price of bitcoin in the near term.

A positive note for bitcoin enthusiasts is the recent rise in gold volatility once its price passed $4,000. The bitcoin-to-gold volatility ratio drifted below 2.0, implying that "bitcoin currently consumes 1.8 times more risk capital than gold."

His calculations suggested that, with a market cap of $2.1 trillion, the price of bitcoin needs to rise by roughly two-thirds (implying around $170,000) to "match on a volatility-adjusted basis the $6.2 trillion of total private sector investment in gold via ETFs GLD and physical bars or coins."

This chart shows the difference between bitcoin price and the volume-adjusted comparison to gold

His conclusion was that "having been $36,000 too high compared [with] gold at the end of last year, bitcoin is now around $68,000 too low."

-Jules Rimmer

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11-06-25 0757ET