Bitcoin cryptocurrency (BTC USD) is not a Market Hedge, JPMorgan Says

Photographer: Yuriko Nakao / Bloomberg

JPMorgan Chase & Co. has cross-asset strategists. bad news for anyone on Wall Street betting that Bitcoin is the hottest way to diversify portfolios in a hedge-free world but high in pricing risk.

Not only has Bitcoin proven to be a short-term pull-down offset in large sales, its very popularity among retail investors is increasing the ticket’s exposure to recurring assets, their research suggests.

The upshot? Investing in crypto might be a better way to protect against losing faith in a country’s currency or payment system – rather than a competitor to gold-like ones.

Bitcoin is “the least trusted hedge during times of acute market stress,” strategists John Normand and Federico Manicardi wrote in a report on Thursday.

While acknowledging the appeal of Bitcoin as a solution for investors worried about policy shocks, the team warned that it will not be behaving like a traditional defensive asset anytime soon.

“Mainstreaming crypto ownership raises the correlation with recurring assets, possibly converting them from insurance to leverage,” they added.

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Bitcoin’s trajectory so far has been unlike anything Wall Street has seen, and the debate is heating up among professional investors. In early January, Normand’s colleague at JPMorgan, Nikolaos Panigirtzoglou suggested that Bitcoin could hit $ 146,000 in the long run as it draws cash from investors who would have previously purchased gold.

Normand and Manicardi analyzed Bitcoin’s relationship with other assets to try to answer the question: Can investors use it to diversify a portfolio?

In the past five years, Bitcoin had a low correlation with hedges, such as gold and Treasures and the yen, making it potentially useful for investors managing a broad portfolio. But in recent times, the dynamics have changed and Bitcoin is moving more in a lockdown with traditional recurring markets.

“If carried out, this development could erode the value of diversification over time,” they said.

Still, opinions remain sharply divided about whether cryptocurrencies are a new asset for the digital age or a speculative frenzy gone haywire. After a boom and bust in 2017, the market was largely dormant until last year, when a combination of renewed Wall Street interest and Robinhood speculation sent prices skyrocketing once again.

Bitcoin prices have pulled back gradually after surpassing $ 40,000 in early January and were trading around $ 32,000 today.

“Whether cryptocurrencies are ultimately judged to be a financial innovation or a speculative bubble, Bitcoin has already achieved the fastest price appreciation ever of any asset it needs,” Normand and Manicardi wrote.