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JP Morgan has outlined three key reasons why investors should add bitcoin to their investment portfolios. S<\/strong>mall allocations to cryptocurrencies would \u201cimprove portfolio efficiency due to high returns and moderate correlations,\u201d JPMorgan\u2019s analyst explained.<\/strong><\/p>\n JPMorgan released a report last week entitled \u201cWhat cryptocurrencies have and haven\u2019t done for multi-asset portfolios.\u201d Published by the firm\u2019s head of Cross-Asset Strategy division, John Normand, the report explores cryptocurrencies\u2019 use for portfolio diversification.<\/p>\n Before discussing the reasons to have BTC<\/a> in portfolios, the report acknowledges that \u201cBitcoin has already achieved the fastest-ever price appreciation of any must-have asset to which it is often compared,\u201d such as gold in 1970s, Japanese equities in 1980s, U.S. tech stocks in 1990s, Chinese equities in 2000s, commodities in 2000s, and FANG stocks in 2010s.<\/p>\n While noting that bitcoin is highly volatile, the analyst hypothetically asked: \u201cWhy bother considering an unconventional and high-volatility hedge?\u201d He then answered his own question by giving three reasons.<\/p>\n Firstly, \u201cEquity and credit valuations look record-rich for a very young business cycle,\u201d the report details. Secondly, \u201cconventional hedges like DM bonds barely serve as insurance when US 10Y rates are near 1%.\u201d The report elaborates that the collapse of DM bond yields to negative levels in Japan and Europe and to 1% in the U.S. has forced investors to focus on alternative investments.<\/p>\n The third reason concerns \u201csome as-yet unseen shocks (materially higher inflation, economically-debilitating cyber attacks or climate catastrophes),\u201d which the JPMorgan analyst believes \u201ccould favor an asset that operates outside conventional financial channels.\u201d For example, Normand cited extraordinary monetary and fiscal stimulus over the past year, which creates general concerns about portfolio vulnerability to a macro or policy shock.<\/p>\n The JPM analyst further asserted that \u201cthe mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage.\u201d Nonetheless, he noted that for long-term portfolio efficiency:<\/p>\n Small (up to 2%) allocations to cryptocurrencies still improve portfolio efficiency due to high returns and moderate correlations.<\/p>\n<\/blockquote>\n <\/ins> <\/ins> <\/p>\n As for shorter-term diversification, Normand wrote: \u201cOver shorter intra-month and intra-quarter horizons, crypto assets continue to rank as the poorest hedge for major drawdowns in global equities, particularly relative to the fiat currencies like the dollar which they seek to displace.\u201d In addition, he was quoted as saying:<\/p>\n Crypto continues to rank as the least reliable hedge during periods of acute market stress.<\/p>\n<\/blockquote>\n Meanwhile, another JPMorgan analyst has forecasted that the price of bitcoin<\/a> will reach $146K as competition between the cryptocurrency and gold heats up. Earlier this month, JP Morgan said that the approval of a bitcoin exchange-traded fund (ETF) this year could cause a price drop<\/a>. Nonetheless, the firm sees $600 billion<\/a> demand from global institutional investors for bitcoin.<\/p>\nJP Morgan Sees Benefits of Hedging With Bitcoin<\/h2>\n
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