JP Morgan identified three main reasons why investors should add Bitcoin to their investment portfolios. S.Allocating shopping malls to cryptocurrencies would “improve portfolio efficiency due to high returns and moderate correlations,” said the JPMorgan analyst.
JP Morgan sees advantages of hedging with Bitcoin
JPMorgan released a report last week entitled “What Cryptocurrencies Have and Have Not Done for Multi-Asset Portfolios”. Published by Head of Cross-Asset Strategy, John Normand, the report examines the use of cryptocurrencies for portfolio diversification.
First, the report acknowledges that “Bitcoin has already seen the fastest price increase yet of any indispensable asset that it is often compared to,” such as gold in the 1970s, Japanese stocks in the 1980s, US tech stocks in the 1990s and Chinese stocks in the 2000s, commodities in the 2000s and FANG stocks in the 2010s.
While the analyst found that Bitcoin is very volatile, he hypothetically asked, “Why bother to consider an unconventional high-volatility hedge?” He then answered his own question with three reasons.
First, “Stock and credit valuations look record high for a very young economic cycle,” the report says. Second, “Conventional hedging deals like DM bonds hardly serve as insurance when US 10-year rates are close to 1%.” The report states that the collapse in yields on DM bonds to negative levels in Japan and Europe and 1% in the US has forced investors to focus on alternative investments.
The third reason concerns “some as yet undiscovered shocks (much higher inflation, economically debilitating cyberattacks or climate catastrophes)” that the JPMorgan analyst believes “could favor an asset that operates outside traditional financial channels”. For example, Normand cited exceptional monetary and fiscal stimulus last year that raised general concerns about the portfolio’s vulnerability to macro or political shock.
The JPM analyst went on to claim that “mainstreaming crypto ownership is creating correlations with cyclical assets and potentially converting them into leverage by insurance companies.” Still, he found that for long-term portfolio efficiency:
Small (up to 2%) allocations in cryptocurrencies still improve portfolio efficiency due to high returns and moderate correlations.
On short-term diversification, Normand wrote, “In shorter horizons within a month and within a quarter, crypto assets continue to be considered the worst hedge for major drawdowns in global stocks, especially when compared to fiat currencies like the dollar they are looking for. “He was also quoted as saying:
Crypto is still considered to be the least reliable protection in times of acute market stress.
Meanwhile, another JPMorgan analyst has forecast that the price of Bitcoin will hit $ 146,000 as competition between cryptocurrency and gold intensifies. Earlier this month, JP Morgan said approval of a Bitcoin Exchange Traded Fund (ETF) could cause prices to fall this year. Still, the company sees $ 600 billion in demand from global institutional investors for Bitcoin.
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