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- Bitcoin's near 35% rally over the past week comes as institutional investors seek an inflation hedge, JPMorgan said in a Thursday note.
- "Institutional investors appear to be returning to bitcoin perhaps seeing it as a better inflation hedge than gold," JPMorgan said.
- These are the three drivers behind bitcoin's strong rally over the past month, according to JPMorgan.
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Bitcoin has staged an epic rally since its lows near $40,000 in late September, surging almost 35% and easily passing by key technical resistance levels.
Driving bitcoin's surge past a $1 trillion market valuation are are range of factors, including increased appetite from institutional investors who are seeking a hedge to inflation, JPMorgan said in a note on Thursday. Bitcoin's growing role as a perceived inflation hedge has taken the wind out of gold prices, which have been flat for almost two years even as concerns about rising inflation grow.
"Institutional investors appear to be returning to bitcoin perhaps seeing it as a better inflation hedge than gold," JPMorgan said, adding that the prior trend of money flowing out of gold and into bitcoin has reemerged in recent weeks.
JPMorgan offered three main drivers as to why bitcoin rallied from $40,000 to about $55,000 in a matter of weeks, according to the note.
1. "The recent assurances by US policy makers that there is no intention to follow China's steps towards banning the usage or mining of cryptocurrencies."
2. "The recent rise of the Lightning Network and 2nd layer payments solutions helped by El Salvador's bitcoin adoption."
3. "The re-emergence of inflation concerns among investors has renewed interest in the usage of bitcoin as an inflation hedge."
With gold failing to act as a reliable inflation hedge in recent months, investors are taking action. Since the start of the year, more than $10 billion has flowed out of gold ETFs, while more than $20 billion has flowed into bitcoin funds, according to the bank.
And those fund flows into bitcoin helped push bitcoin's share of the total cryptocurrency market to nearly 45% from a low of 41% in mid-September. "The increase in the share of bitcoin is a healthy development as it is more likely to reflect institutional participation than smaller cryptocurrencies," JPMorgan said.
While bitcoin still remains 15% below its record high of $65,000 reached in mid-April, the cryptocurrency is up 86% year-to-date. Meanwhile, gold is down 7% this year.
