Bitcoin Is The “Least Reliable Hedge” During Acute Market Stress – JPMorgan Strategists
Despite Bitcoin’s remarkable performance over the last ten months, JPMorgan Chase & Co. cross-asset strategists believe that the leading cryptocurrency is not a good hedge during severe market conditions.
In a Thursday report, the bank’s strategists – John Normand and Federico Manicardi – wrote that Bitcoin has proven to be weak at withstanding “short-term drawdowns” during terrible market crashes.
Investing in Bitcoin can be the best way to protect against the loss of faith in fiat or traditional payment system. Still, it is the “least reliable hedge during periods of acute market stress,” they wrote. It is not a good competitor to traditionally defensive assets like gold, the strategists said, adding that it will take time for the cryptocurrency to achieve that feat.
“The mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage,” the team added.
Since the start of the latest bull run, Bitcoin has been a hot debate among Wall Street investors and strategists, with some arguing that the asset is the hottest way to diversify portfolios.
To determine whether Bitcoin is good for portfolio diversification, the duo analyzed the cryptocurrency’s relationship with other hedge assets.
Historical data shows that Bitcoin had a low correlation with hedges like gold and Treasuries, making it a potential option for investors with board portfolios. However, the strategists noted that recent data indicates that the dynamics have changed, and the asset is now moving in “lockstep with traditional cyclical markets.” If the recent correlation continues, it could gradually ruin bitcoin’s diversification potentials, Normand and Manicardi said.
Fastest-ever Price Appreciation Asset
Despite their view, the strategists did not fail to acknowledge Bitcoin’s remarkable performance in recent months.
“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,” they wrote.
Meanwhile, another JPMorgan strategist predicted last October, when Bitcoin was trading around $13,200, the asset’s price could hit 3x, reaching $40,000 if the bull trend continues. Bitcoin recorded an all-time high price of almost $42,000 on January 08, 2021.