JP Morgan outlined three key reasons why investors should add Bitcoin to their portfolio.smallJPMorgan Chase analysts explained that allocating shopping malls to cryptocurrencies will “improve portfolio efficiency due to high returns and moderate correlation”.
JPMorgan Chase sees the benefits of hedging with Bitcoin
JPMorgan released a report last week titled “What cryptocurrencies are not yet realized for a multi-asset portfolio.” The report was released by John Normand, head of the company’s cross-asset strategy department, and explored the use of cryptocurrencies in portfolio diversification.
Before discussing the reasons for including BTC in the investment portfolio, the report acknowledged that “Bitcoin has achieved the fastest price appreciation ever of any frequently compared essential asset”, such as gold in the 1970s and Japanese stocks in the 1980s. US technology stocks in the 1990s, Chinese stocks in the 2000s, commodities in the 2000s, and FANG stocks in the 2010s.
While pointing out that Bitcoin is highly volatile, the analyst hypothetically asked: “Why should we consider unconventional and highly volatile hedging?” Then, he answered his question by giving three reasons.
First, the report details that “in a very young business cycle, stock and credit valuations seem to be record-breaking.” Second, “When the 10-year interest rate in the United States approaches 1%, conventional hedges like DM bonds can hardly serve as insurance.” The report details that DM bond yields in Japan and Europe plummeted to negative levels, while in the United States they fell. To 1%, which forces investors to focus on alternative investments.
Analysts at JPMorgan Chase believe that the third reason is “some unseen shocks (rising inflation rate, economic destructive cyberattacks or climate disasters). JPMorgan Chase analysts believe this may be beneficial in traditional financial channels. For example, Normand cited special monetary and fiscal stimulus measures in the past year, which raised widespread concerns about the vulnerability of securities portfolios to macro or policy shocks.
JPMorgan Chase analysts further asserted that “the mainstream of cryptocurrency ownership is increasing its relevance to cyclical assets, and it is possible to convert it from insurance to leverage.” Nevertheless, he pointed out that in order to improve the efficiency of long-term investment portfolios:
Due to high returns and moderate correlation, small allocations (up to 2%) of cryptocurrencies can still improve portfolio efficiency.
As for short-term diversification, Normand wrote: “In a short month and quarter, crypto assets are still the worst hedging tool for global stocks to shrink, especially relative to the fiat currencies they seek to replace .” In addition, he was quoted as:
During periods of severe market pressure, cryptocurrencies continue to be ranked as the least reliable hedging tool.
At the same time, another JPMorgan Chase analyst predicted that as the competition between cryptocurrencies and gold intensifies, the price of Bitcoin will reach 146,000 US dollars. Earlier this month, JPMorgan Chase stated that this year’s approval of Bitcoin exchange-traded funds (ETFs) could cause prices to fall. Despite this, the company still believes that global institutional investors’ demand for Bitcoin is $600 billion.
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