Bitcoin's Undervaluation vs. Gold and the Case for Institutional Adoption

Bitcoin’s journey from speculative curiosity to institutional asset class has reached a pivotal inflection point. JPMorgan’s recent analysis underscores a compelling narrative: Bitcoin is undervalued relative to gold when adjusted for volatility, with a fair value of $126,000 by year-end 2025 [1]. This assessment is rooted in a dramatic convergence of risk profiles between Bitcoin and gold, driven by corporate treasury adoption, index inclusion, and evolving market dynamics.

Volatility Convergence and Risk-Adjusted Valuation

Bitcoin’s six-month rolling volatility has plummeted from 60% at the start of 2025 to 30% today, narrowing its volatility gap with gold to a 2.0 ratio—meaning Bitcoin is now only twice as volatile as gold [2]. This is the narrowest gap on record and aligns Bitcoin closer to gold’s risk profile. JPMorgan’s volatility-adjusted model calculates Bitcoin’s fair value by comparing its risk-return characteristics to gold, a $5 trillion private investment market. At current prices, Bitcoin trades at a 13% discount to this benchmark [3].

The decline in volatility is not coincidental. Over 6% of Bitcoin’s total supply is now held by corporate treasuries, with companies like Strategy Inc. (632,457 BTC) and Marathon Digital Holdings (50,639 BTC) leading the charge [4]. These institutional holdings act as a stabilizing force, reducing price swings and enhancing Bitcoin’s appeal for diversified portfolios. Additionally, Bitcoin’s Sharpe ratio from 2020 to 2025 reached 0.96, outperforming both gold and equities [5]. A portfolio combining Bitcoin and gold could yield Sharpe ratios of 1.5–2.5, making it a superior risk-adjusted proposition [5].

Corporate Treasury Adoption: A Catalyst for Stability

The surge in corporate Bitcoin holdings has transformed the asset’s market dynamics. By mid-2025, public companies collectively held 847,000 BTC, valued at $91 billion, with quarter-over-quarter growth of 23.13% [6]. This trend is not limited to a few outliers: 46 new companies entered the Bitcoin treasury space in Q2 2025 alone [6]. These holdings are funded through convertible bonds, equity raises, and strategic capital allocation, signaling a shift toward treating Bitcoin as a core reserve asset [4].

The impact on volatility is measurable. As institutional investors lock up Bitcoin in treasuries, the asset’s liquidity profile improves, reducing speculative trading and price swings. For example, DDC Enterprise’s 1,008 BTC holdings (placing it 42nd among public holders) reflect a broader trend of corporate diversification into digital assets [4]. This accumulation is further amplified by index inclusion, as seen with Coinbase’s addition to the S&P 500 in May 2025—a milestone that legitimizes crypto-native companies in traditional finance [7].

Index Inclusion and Regulatory Tailwinds

Bitcoin’s inclusion in major financial indices and regulatory frameworks is accelerating institutional adoption. The U.S. Department of Labor’s rescission of its 2022 guidance now allows 401(k) plans to include crypto investments, unlocking access to the $8.7 trillion retirement market [7]. Meanwhile, spot Bitcoin ETFs—approved in early 2024—have driven $15 billion in digital treasury investments in 2025, with BlackRock-managed funds surpassing $100 billion in crypto-related assets [7].

These developments are reshaping Bitcoin’s role in institutional portfolios. By mid-2025, 67% of institutional portfolios included Bitcoin and Ethereum, up from 37% in retail portfolios [7]. The asset’s correlation with the S&P 500 has averaged 0.38 over five years, rising to 0.70 during market turmoil [7]. While this suggests Bitcoin’s diversification benefits may wane during crises, its risk-adjusted returns remain superior to traditional assets.

The Case for Institutional Allocation

Bitcoin’s undervaluation, volatility convergence, and institutional adoption create a compelling case for allocation. JPMorgan’s $126,000 fair value target implies a 13% upside from current levels, but the broader opportunity lies in Bitcoin’s evolving risk profile. As corporate treasuries and index inclusion normalize the asset, its volatility will likely continue to decline, further narrowing the gap with gold.

For institutions, Bitcoin offers a unique combination of growth potential and diversification. Its Sharpe ratio outperforms equities and gold, while its low correlation with traditional assets provides a hedge against macroeconomic risks. However, investors must remain mindful of regulatory shifts and market volatility during periods of stress.

Conclusion

Bitcoin’s journey from fringe asset to institutional staple is far from complete, but the evidence is clear: it is undervalued on a risk-adjusted basis and primed for broader adoption. JPMorgan’s volatility-adjusted model, corporate treasury trends, and index inclusion milestones collectively paint a picture of an asset class that is maturing rapidly. For institutions seeking to balance growth and risk, Bitcoin’s current valuation and evolving dynamics present a compelling opportunity.

Source:
[1] JPMorgan Says Bitcoin Undervalued Versus Gold as ... [https://thedefiant.io/news/markets/jpmorgan-says-bitcoin-undervalued-versus-gold-volatility-hits-record-low-01a7c4da]
[2] Bitcoin Undervalued Versus Gold as Volatility Collapses, ... [https://www.coindesk.com/markets/2025/08/28/bitcoin-undervalued-versus-gold-as-volatility-collapses-jpmorgan-says]
[3] JPMorgan says current bitcoin price 'too low,' sees upside ... [https://www.theblock.co/post/368653/jpmorgan-says-current-bitcoin-price-too-low-sees-upside-to-126000-by-year-end]
[4] These Companies Own the Most Bitcoins – Are They an Investor’s Goldmine or a Risky Gamble? [https://www.investopedia.com/these-companies-own-the-most-bitcoins-are-they-an-investor-s-goldmine-or-a-risky-gamble-11786832]
[5] Bitcoin's Undervaluation vs. Gold: A Volatility-Adjusted Buy ... [https://www.ainvest.com/news/bitcoin-undervaluation-gold-volatility-adjusted-buy-opportunity-2508/]
[6] Comprehensive Analysis: Q2 2025 Crypto Market Report [https://www.gecocapital.ee/blog/comprehensive-analysis-q2-2025-crypto-market-report]
[7] Cryptocurrency in Investment Portfolios Statistics 2025 [https://coinlaw.io/cryptocurrency-in-investment-portfolios-statistics/]