After saying that cryptocurrencies â€œrank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits,â€ JPMorgan says investors can put 1% of their portfolios in cryptocurrencies. This can help â€œachieve any efficiency gain in the overall risk-adjusted returns of the portfolio,â€ the firmâ€™s strategists explained.
Investors Can Allocate 1% of Portfolios to Bitcoin, Says JPMorgan
JPMorgan Chase now sees benefits in adding a small percentage of bitcoin to a multi-asset portfolio. The firmâ€™s global head of research, Joyce Chang, and vice president of strategic research, Amy Ho, wrote in a note to clients Wednesday:
However, the strategists clarified: â€œCryptocurrencies are investment vehicles and not funding currencies. So when looking to hedge a macro event with a currency, we recommend a hedge through funding currencies like the yen or U.S. dollar instead.â€
While many analysts believe that bitcoin is a way to hedge against significant fluctuations in traditional asset classes, including stocks, bonds, and commodities, JPMorgan has doubts. It was only last week that the investment bank claimed bitcoin was an â€œeconomic sideshow,â€ adding:
JP Morgan also said that the recent prices of bitcoin are well above the cryptocurrencyâ€™s fair value estimates. The firm further asserted that mainstream adoption increases bitcoinâ€™s correlation with cyclical assets, which rise and fall with economic changes. This reduces bitcoinâ€™s benefits of diversifying portfolios. Nonetheless, its most recent report recommends that investors can add a small percentage of bitcoin to their portfolios.
The investment bank has come a long way since its CEO Jamie Dimon called the cryptocurrency a fraud back in September 2017. Earlier this month, JPMorganâ€™s co-president Daniel Pinto said that he is certain the demand for bitcoin â€œwill be [there] at some point.â€ The executive confirmed: â€œIf over time an asset class develops that is going to be used by different asset managers and investors, we will have to be involved.â€ Moreover, the firmâ€™s analysts have predicted that bitcoinâ€™s price could reach $146,000 as the cryptocurrencyâ€™s competition with gold heats up.
What do you think about JPMorganâ€™s view on bitcoin? Let us know in the comments section below.
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