Bitcoin is 'economic side show' and poor hedge against stocks: JP Morgan
Bitcoin is an “economic side show” and a poor hedge against a decline in equity prices, analysts at JP Morgan said in a sobering assessment that could undercut the cryptocurrency’s rise to record highs.
Current prices are well above JP Morgan’s estimates of fair value and the mainstream adoption of bitcoin increases its correlation with cyclical assets, which reduces the benefits of diversifying into bitcoin, the investment bank said in a memo.
Bitcoin, the most popular cryptocurrency, last traded at $51,116 on Friday, down from a record high of $52,640 reached on Wednesday. Rival cryptocurrency ether traded near a record of $1,951 reached earlier on Friday.
Bitcoin has surged by 45% so far this month, fuelled by signs it is winning acceptance among mainstream investors and companies, such as Tesla, Mastercard and BNY Mellon, but many observers remain sceptical of the unregulated and highly volatile digital asset.
“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,” analysts at JP Morgan said.
Some of bitcoin’s supporters argue that the cryptocurrency is “digital” gold that can hedge against inflation and declines in the dollar.
Based on that logic, bitcoin would need to rise to $146,000 in the long-term for its market capitalisation to equal total private-sector investment in gold via exchange-traded funds or bars and coins, according to JP Morgan.
Tesla’s chief executive Elon Musk said on Thursday that owning bitcoin was only a little better than holding cash. He also defended Tesla’s recent purchase of $1.5 billion of bitcoin, which re-ignited mainstream interest in the digital currency.
Bitcoin, the most popular cryptocurrency, last traded at $51,116 on Friday, down from a record high of $52,640 reached on Wednesday. Rival cryptocurrency ether traded near a record of $1,951 reached earlier on Friday.
Bitcoin has surged by 45% so far this month, fuelled by signs it is winning acceptance among mainstream investors and companies, such as Tesla, Mastercard and BNY Mellon, but many observers remain sceptical of the unregulated and highly volatile digital asset.
“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,” analysts at JP Morgan said.
Some of bitcoin’s supporters argue that the cryptocurrency is “digital” gold that can hedge against inflation and declines in the dollar.
Based on that logic, bitcoin would need to rise to $146,000 in the long-term for its market capitalisation to equal total private-sector investment in gold via exchange-traded funds or bars and coins, according to JP Morgan.
Tesla’s chief executive Elon Musk said on Thursday that owning bitcoin was only a little better than holding cash. He also defended Tesla’s recent purchase of $1.5 billion of bitcoin, which re-ignited mainstream interest in the digital currency.
AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
