JPMorgan says the Iran war has caused an unusual market divide: Bitcoin is showing signs of safe-haven demand while gold and silver, time-honored geopolitical hedges, have weakened under pressure from outflows, profit-taking and deteriorating liquidity.

In report on March 26, Nikolaos Panigirtzoglou and his team found that bitcoin has outperformed precious metals since the conflict escalated. According to the bank, the price of gold has fallen by about 15% this month, while gold ETFs saw outflows of almost $11 billion in the first three weeks of March. Silver has also come under pressure, with JPMorgan stating that ETF inflows built since last summer have now ended, even as bitcoin funds continued to see net inflows over the same period.

Bitcoin shows demand for a protected haven

This discrepancy is not just a matter of pricing. JPMorgan argues that this is also noticeable in the positioning and structure of the market. Gold and silver trades have become extremely crowded after gold prices plummeted to near $5,500 an ounce and silver prices dropped to near $120 earlier this year.

As rates rose, the dollar strengthened and investors began to reduce risk, these positions began to loosen. CME-based positioning shows a edged decline in gold and silver exposure since January, while bitcoin futures content has remained relatively stable in recent weeks.

The bank’s explanation is more nuanced than the usual “bitcoin replaced by gold” narrative. Bitcoin initially sold off along with other risky assets when the war broke out, briefly falling to the low $60,000 range before stabilizing again in the $60,000 to low $70,000 area. JPMorgan says bitcoin did not behave like a classic shelter during the first phase of the shock, but rebounded as flows returned, while gold and silver continued to lose support.

JPMorgan also linked this relative resilience to the usefulness of cryptocurrencies in a stressed jurisdiction. “The deterioration of gold’s liquidity conditions has caused its market breadth to fall below the current bitcoin breadth,” the bank wrote.

In a separate summary of the same report, JPMorgan said: “Iran’s increase in crypto activity underscores the role of cryptocurrencies as safe-haven assets in countries experiencing economic and monetary instability and geopolitical tensions.” The bank cited Chainalytic data showing increased Iranian crypto activity after the outbreak of the war, including transfers from domestic exchanges to self-service wallets and international platforms.

This combination of borderless settlements, self-reliance and 24/7 trading is at the heart of the bank’s argument. Bitcoin’s momentum indicators, which were in oversold territory, are now returning to neutral, JPMorgan said, suggesting selling pressure may be waning.

In turn, gold and silver momentum has moved from overbought to below neutral as liquidations accelerate. The bank’s liquidity research indicates the same: gold’s market breadth has now fallen below bitcoin’s breadth, while silver’s shallower depth has made its decline even more steep.

At the time of publication, the price of BTC was $68,597.

Featured image created with DALL.E, chart from TradingView.com