JPMorgan: BTC Cannot Diversify Portfolios Like We Think

JPMorgan: BTC Cannot Diversify Portfolios Like We Think

JPMorgan keeps talking about bitcoin as of late. Recently, analysts from the financial giant claimed that if it didn’t spike back to $40,000 soon, traders would likely see their portfolios dwindle and their stashes were likely to experience major suffering. With the asset’s recent $9,000 drop after reaching its new all-time high, one must wonder if it will take a while before BTC jumps into $40,000 territory again.

JPMorgan: Bitcoin Is Not as Strong as We Think

Now JPMorgan is claiming that the digital currency is not the best way to diversify one’s portfolio. They claim that the recent attitude of bitcoin serving as a hedge tool is not entirely true, and that in the past, it hasn’t done well when it comes to knocking out the effects of drooping assets.

Ever since the coronavirus pandemic began battering the world’s financial markets, bitcoin and cryptocurrencies have taken on new forms. It used to be that bitcoin, for example, was nothing but a speculative asset; something that was risky, but that could still make a person rich overnight if they played their cards correctly.

However, following the introduction of COVID-19, many people view bitcoin in an entirely new light. They see it as an asset that could potentially keep their portfolios straight and safe during times of economic strife. As a result of this newfound respect, the asset has spiked into hardcore five-figure territory, and many analysts believe the asset could see six-figure territory of $100,000 or more before the year is out.

But JPMorgan doesn’t quite agree. In a recent report, the financial firm states that the asset remains mostly popular with retail investors and claim that’s why bitcoin is still hugely tied to “cyclical assets.” Thus, major selloffs and dips aren’t likely to disappear from bitcoin’s future anytime soon.

John Normand and Federico Manicardi – analysts with the company – wrote in the report that bitcoin was the “least reliable hedge during periods of acute market stress.” They also said that while they can understand why investors would be so intrigued by it, bitcoin isn’t likely to behave like a “traditional defensive asset” at any point in the coming future.

They write:

The mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage.

They also stated that while in previous years the asset has had low correlation with precious metals and fiat, in recent days it is moving more in tandem with standard investing tools, and thus it isn’t likely to perform the diversification that many traders believe it will.

The analysts say:

If sustained, this development could erode diversification value over time.

The Biggest Surge in Financial History?

Still, not all their sentiment was negative. The report ends with:

Whether cryptocurrencies are judged eventually as a financial innovation or a speculative bubble, bitcoin has already achieved the fastest-ever price appreciation of any must-have asset.

Tags: bitcoin, hedge tool, JPMorgan

Published at Sat, 23 Jan 2021 22:25:46 +0000

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