Bank of America sees no good reason to own bitcoin other than â€œsheer price appreciation.â€ The firmâ€™s strategists found that the cryptocurrencyâ€™s â€œinflation hedging benefits are not particularly apparent.â€ Bank of America also claims that bitcoin does not offer diversification benefits and is â€œimpractical as a store of wealth or payments mechanism.â€
Bank of America Sees One Good Reason to Own Bitcoin
A Bank of America team led by strategist Francisco Blanch said in a report published Wednesday that there is â€œno good reason to own bitcoin unless you see prices going up.â€ Blanch is head of Global Commodities, Equity Derivatives, and Cross-Asset Quantitative Investment Strategies at Bank of America Merrill Lynch Global Research.
The strategists wrote that â€œBitcoin has â€¦ become correlated to risk assets, it is not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or payments mechanism.â€ They continued:
Regarding using bitcoin as a hedge against inflation due to its fixed supply, the Bank of America strategists concluded that based on their data, bitcoinâ€™s â€œinflation hedging benefits are not particularly apparent.â€
The strategists also downplayed the diversification benefits of the cryptocurrency. The Bank of America report states that bitcoinâ€™s price is more positively correlated â€œwith equities and commodities, while neutral/slightly correlated to haven assets such as the dollar and U.S. treasuries.â€ In addition, its â€œcorrelations with risk assets such as MSCI World tend to move in lock step even across asset classes.â€
The Bank of America strategists elaborated: â€œLooking year by year, we find that bitcoin has been positively correlated with CPI inflation in 5 out of the 9 past years, with the largest correlations in 2014 and 2018 â€¦ However, when looking at correlations with inflation surprises since 2011, we find that bitcoin has among the lowest co-movements, lagging most asset classes such as commodities, TIPS, and EM FX in particular.â€
Bitcoinâ€™s price has repeatedly hit record highs over the past months. At the time of writing, its price stands at $57,201, up almost 78% since the beginning of the year and about 24% since the beginning of the month. Bank of America says the BTC price gains were largely driven by institutional buyers announcing big purchases, such as Elon Muskâ€™s Tesla, Square, Paypal, and the Grayscale Bitcoin Trust.
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