JPMorgan is one of the leading banks when it comes to crypto investments at the moment. A report released last week by the bank’s head of Cross-asset Strategy Division John Normand, encourages investors to consider adding Bitcoin to their Investment portfolio.
Jamie Dimon, CEO of JP Morgan Chase had compared Bitcoin to Tulip bubble in the past but the view appears to have changed over the years as cryptocurrency has gained momentum.
Higher growth than any competing asset classes
In a report titled “What cryptocurrencies have and haven’t done for multi-asset portfolios,” Normand explores BTC’s use for portfolio diversification. He starts off by acknowledging Bitcoin’s recent achievements as the fastest- ever appreciator of any must-have asset that is often compared to it. Bitcoin has been christened as digital gold by some but most people compare it to gold in the 1970’s, Japanese equities in the 1980’s, U.S tech stocks in the 1990’s, commodities in the 2000’s, Chinese equities in the 2000’s and Fang stocks in the 2010’s.
While noting and acknowledging that BTC is highly volatile, he emphasized that the asset class had trumped all of the above assets and then some. In the meat of the report, Normand goes on to highlight three reasons why believes that investors should consider adding BTC to their investment portfolio.
The first reason he gave was that equity and credit valuations were super impressive for such a young business cycle. Highlighting how fast and steady BTC has grown in just a decade. Secondly, he highlighted the decline in convectional hedges like DM bonds which are now at negative levels in Japan and Europe, therefore, forcing investors to look at alternatives. The third reason was the possibility of unforeseen shocks in convectional financial ecosystems such as higher material inflation, forcing investors to look outside convectional financial channels.
Bitcoin is a poor hedge in the short term
Normand went on to say that “the mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage.” He added that for long-term portfolio efficiency; “Small (up to 2%) allocations to cryptocurrencies still improve portfolio efficiency due to high returns and moderate correlations”. He however, gave a damning overview of Bitcoin as a short term investment. He said that crypto assets rank as the poorest hedge for major drawdowns in global equities, particularly relative to fiat currencies. To put it simply, he said that cryptos are the least reliable during periods of market stress.
High capital inflows despite price drawdowns
Normand’s sentiments are largely positive when it comes to crypto. A lot of positive sentiment when to BTC has come from the bank lately with another analyst recently predicting that Bitcoin would rise to $146,000 a coin soon. Though Bitcoin has in the last few hours dropped to below $33,000 again, we still have decent institutional capital inflows being seen.
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