Following a sharp decline in October that saw bitcoin fall more than 20% from its all-time high of $126,000, JPMorgan strategists now see the asset as undervalued compared to gold.

Bitcoin’s steep drop and deleveraging

According to JPMorgan global markets strategist Nikolaos Panigirtzoglou, bitcoin’s dramatic price drop was driven by two main factors:

Substantial liquidations in perpetual futures contracts and the aftermath of a $128 million theft from decentralized-finance protocol Balancer.

This deleveraging led the ratio of open interest in perpetuals to bitcoin’s market capitalization back to its average level since January 2024, indicating that excess leverage has largely been cleared from the market.

ETF redemptions remain modest

While there have been redemptions from some U.S. spot bitcoin exchange-traded funds, Panigirtzoglou noted these outflows have been limited when compared to previous inflows.

The strategist believes most of the deleveraging activity is now behind the market, with the ratio of perpetuals open interest to market cap serving as a key indicator for short-term price action.

Bitcoin vs gold: volatility-adjusted outlook

JPMorgan’s analysis found that, on a volatility-adjusted basis, bitcoin currently appears cheaper than gold.

Gold’s volatility increased as its price surpassed $4,000, while bitcoin’s relative volatility subsided.

The strategist calculated that bitcoin needs to rise by about two-thirds—implying a price near $170,000—to match the $6.2 trillion in private-sector gold investment on a similar risk-adjusted basis.

Panigirtzoglou concluded:

“Having been $36,000 too high compared [with] gold at the end of last year, bitcoin is now around $68,000 too low.”

Outlook for the months ahead

JPMorgan expects that, with deleveraging mostly completed, bitcoin could see “significant upside” over the next six to twelve months if current volatility and risk-adjusted metrics persist.