Bitcoin's Undervaluation Relative to Gold: A $126,000 Fair Value Case in 2025

Bitcoin’s valuation narrative in 2025 has shifted dramatically, driven by institutional adoption and a historic convergence in volatility with gold. As of Q3 2025, Bitcoin’s six-month rolling volatility has plummeted to 30%, down from 60% at the start of the year, narrowing the volatility gap with gold to a ratio of 2.0—meaning Bitcoin is now only twice as volatile as the precious metal [1]. This convergence has sparked a compelling argument that Bitcoin is undervalued relative to gold, with JPMorgan estimating a fair price of $126,000 to align with gold’s $5 trillion private investment market [2].

Institutional Adoption: The Catalyst for Stability

The surge in institutional adoption has been the primary driver of Bitcoin’s volatility contraction. By Q1 2025, 59% of institutional portfolios included Bitcoin, with 59% allocating over 10% of assets to digital assets [3]. Regulated products like BlackRock’s iShares Bitcoin Trust (IBIT) have amassed $18 billion in assets under management, while U.S. spot Bitcoin ETFs collectively hold over $50 billion [3]. Regulatory clarity, including the SEC’s approval of in-kind redemptions for crypto ETPs and the U.S. CLARITY Act, has further streamlined institutional participation [3].

Corporate treasuries and sovereign funds have also deepened their Bitcoin exposure. The U.S. government established a Strategic Bitcoin Reserve, and Norway’s sovereign wealth fund increased its BTC holdings by 150% year-on-year [3]. These moves mirror the stabilizing effects of central bank quantitative easing, as large-scale accumulation locks up liquidity and reduces price swings [1]. By Q3 2025, institutions controlled 6% of Bitcoin’s total supply, a threshold that has historically correlated with reduced volatility in other asset classes [1].

Volatility Convergence and Fair Value

The volatility convergence between Bitcoin and gold has reshaped its valuation framework. JPMorgan’s analysis posits that Bitcoin’s current market cap of $2.2 trillion would need to rise by 13%—to $126,000 per coin—to match gold’s $5 trillion market cap on a volatility-adjusted basis [2]. This calculation assumes Bitcoin’s risk profile is now comparable to gold, with its volatility ratio (2.0) reflecting a level of stability previously unseen in the cryptocurrency market [1].

The decline in volatility is not merely a function of market maturity but also of structural changes. ETF inflows have added $118 billion to Bitcoin’s liquidity pool, reducing retail-driven price swings [4]. Additionally, Bitcoin’s inclusion in major equity indices, such as the FTSE All-World Index, has attracted passive institutional capital, further dampening volatility [1]. These factors collectively support the argument that Bitcoin’s fair value is significantly higher than its current price.

Strategic Implications for Investors

The volatility convergence has also influenced portfolio strategies. Institutional investors are increasingly adopting a “core-satellite” approach, allocating 60–70% to Bitcoin for growth and 30–40% to gold or altcoins for stability [4]. This strategy has yielded Sharpe ratios of 1.5–2.5, outperforming either asset alone [4]. For long-term investors, Bitcoin’s projected compound annual growth rate of 28.3% and a 2035 target of $1.3 million underscore its potential as a superior store of value in high-inflation environments [5].

Conclusion

Bitcoin’s undervaluation relative to gold is a product of both institutional adoption and volatility convergence. As regulatory frameworks solidify and corporate treasuries continue to accumulate, the $126,000 fair value target becomes increasingly plausible. For investors, the key takeaway is clear: Bitcoin’s evolving risk profile and institutional integration position it as a cornerstone of modern diversified portfolios.

Source:
[1] JPMorgan Says Bitcoin (BTC) Undervalued Compared to Gold as Volatility Hits Record Lows [https://cryptorank.io/news/feed/3bf80-jpmorgan-says-bitcoin-btc-undervalued-compared-to-gold-as-volatility-hits-record-lows]
[2] Bitcoin Undervalued Compared To Gold, Fair Value At $126000 [https://finance.yahoo.com/news/bitcoin-undervalued-compared-gold-fair-172230487.html]
[3] Bitcoin Q1 2025 Institutional Adoption and Market Analysis [https://telcoinmagazine.substack.com/p/bitcoin-q1-2025-institutional-adoption]
[4] Bitcoin's Volatility in Q3 2025: Navigating a Bear-Dominant Cycle [https://www.ainvest.com/news/bitcoin-volatility-q3-2025-navigating-bear-dominant-cycle-macro-technical-signals-2508/]
[5] Bitcoin Long-Term Capital Market Assumptions: 2025 [https://bitwiseinvestments.com/crypto-market-insights/bitcoin-long-term-capital-market-assumptions-2025]