JPM on Bitcoin: Speculative flows surge following Tesla announcement

On Monday the automaker Tesla Inc (NASDAQ:TSLA) announced that they had bought $1.5bln – or approximately 8% of its cash reserves – worth of bitcoin to diversify their reserves. The announcement sent Bitcoin surging to new record highs and approached $50,000 before stabilising around $47,000. One of the big questions following the announcement was will other companies follow suit?

“Although we are sceptical that Tesla is a typical corporate and its example will be followed by more mainstream corporates, we recognise that Tesla’s announcement broadens corporate sponsorship,” writes JPMorgan in a research note. “In our opinion, the main issue with the idea that mainstream corporate treasures will follow the example of Tesla is the volatility of bitcoin.”

JPMorgan (NYSE:JPM) are quick to acknowledge that in the term, the announcement changed the trajectory of bitcoin, bolstering inflows and forcing prices to record highs. The bank uses a proxy based on Bitcoin Futures contracts to identify retail and momentum flow and they note a sharp $1bln increase in the last week, pointing to an “intense build-up of futures positions.”

The bank also has a second proxy for institutional flow into bitcoin but that has shown less of an impulse. The flow here is based on the Grayscale Bitcoin Cash Trust (OTC:BCHG) which is around $300mln per week, compared to around $500mln per week in December. Therefore, JPM has concluded that the additional flow impulse that helped bitcoin head towards $50,000 has come from more speculative institutional investors like those behind bitcoin futures rather than the ones behind the Grayscale Bitcoin Trust.

“Irrespective of how many corporates eventually follow Tesla’s example, there is no doubt this week’s announcement changed abruptly the near-term trajectory for bitcoin by bolstering speculative institutional flows as well as retail flows,” JPMorgan concludes. “How sustained this week’s price surge becomes would depend in our opinion on whether less speculative institutional flows like those behind the Greyscale Bitcoin Trust follow suit.”