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Reversal of money flows: Big institutional players exit crypto and turn to gold, says JPMorgan

Kitco News

(Kitco News) As the crypto space attempts to recover from a massive selloff, JPMorgan reports that big institutional players are leaving bitcoin for gold.

This is a reversal of a major trend that was first spotted last year and was very prominent during the first quarter of this year when bitcoin was taking away large money flows traditionally intended for safe-haven assets such as gold.

"The bitcoin flow picture continues to deteriorate and is pointing to continued retrenchment by institutional investors," JPMorgan said in a report this week. "Over the past month, bitcoin futures markets experienced their steepest and more sustained liquidation since the bitcoin ascent started last October."

The selloff in bitcoin accelerated on Wednesday, when the popular cryptocurrency dropped to almost $30,000, seeing its worst day since March of last year. The massive selloff came after China said that virtual currencies could not be used as a form of payment. 

This also marked a retreat of nearly $35,000 from bitcoin's record high of $64,829.14, seen in mid-April.

Gold was the only asset standing tall in the sea of red on Wednesday morning as stocks, commodities, and cryptocurrencies plunged. The overall trend in gold has shifted to the bullish side after the precious metal bottomed out at $1,680 at the end of March and started its approach to the $1,900 an ounce level.

JPMorgan pointed out that the retreat in bitcoin coincided with new inflows into gold.

"This suggests that institutional investors appear to be shifting away from bitcoin and back into traditional gold, reversing the trend of the previous two quarters," analysts led by Nikolaos Panigirtzoglou said in the report.

Multiple drivers could be behind this reversal into gold. One of the possible reasons JPMorgan cited was an end to bitcoin's bullish trend upwards.

Panigirtzoglou also pointed out that gold's stability is an attraction to investors leaving the crypto space, adding that the rotation back into gold could have been triggered by bitcoin rising too high relative to the precious metal.

The JPMorgan report follows the Bank of America fund manager's survey, which said that bitcoin's long positions looked like one of the most overcrowded trades. The survey polled 194 fund managers with $592 billion worth of AUM.

"'Long Bitcoin' is now the most crowded trade at 27%. Prior 'peaks' in crowded trades (tech Sep '20 & Sep '18, U.S. Treasuries Mar '20, U.S. dollar Jan '17 & Feb' 15) were associated with relative tops," the survey noted.

At the time of writing, bitcoin was trading at $39,366.32, down 9.68% on the day, and spot gold was at $1,870.80, up 0.11% on the day.

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