JP Morgan says that Bitcoin (BTC) is like an “economic side show” when compared to the emergence of many new Fintech businesses.
The bank’s analysts have argued that Bitcoin is a poor hedge against the falling equity prices.
The world’s leading digital currency is trading at well over $55,000 at the time of writing. Although it keeps setting new all-time highs (surpassing $57,000 this past weekend), Bitcoin continues to draw a lot of criticism, particularly from large and more traditional financial institutions that may perceive it as a threat to their long-time dominance of global financial markets.
JPMorgan analysts have said that the mainstream adoption of Bitcoin has increased its correlations with cyclical assets, which may significantly lower the advantages of diversifying portfolios into the flagship cryptocurrency.
JPMorgan analysts stated:
“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.”
The BTC price has surged over 60% during February 2021. The leading crypto has been supported by prominent investors and large publicly-listed firms, such as MicroStrategy and more recently Elon Musk’s Tesla and even Mastercard.
As widely reported, Tesla acquired $1.5 billion in Bitcoin and intends to take the digital asset as payment in the future. Notably, Tesla Inc has already made $1 billion in unrealized profits from its large BTC purchase. The tech firm’s gains from its recent Bitcoin allocation may be actually greater than what the electronic carmaker had earned from its company sales throughout 2020, according to industry analysts.
In a filing with the US Securities and Exchange Commission (SEC), Tesla had confirmed that it “invested an aggregate $1.5 billionn in Bitcoin,” and “may acquire and hold digital assets from time to time or long-term.”
The company further noted that it plans to “begin accepting bitcoin as a form of payment for [its] products in the near future, subject to applicable laws and initially on a limited basis, which [it] may or may not liquidate upon receipt.”
Despite its meteoric rise during the past year, Bitcoin investors are criticized for their decisions because some analysts argue that the asset is too volatile and reminds them of the Tulip Mania craze of the 1600s.
Meanwhile, JPMorgan analysts added:
“Bitcoin’s competition with gold as an ‘alternative’ currency will likely continue as Millennials become a more important component of investors’ universe and given their preference for ‘digital gold’ over traditional gold.”
They further noted:
“Bitcoin would need to rise to $146,000 in the long-term for its market capitalization to equal total private-sector investment in gold via exchange-traded funds or bars and coins.”
Comments from JPMorgan have been issued as Elon Musk, the world’s wealthiest person with a net worth approaching $200 billion, stated this past Thursday that owning Bitcoin was just a bit better than maintaining fiat cash reserves.
“To be clear, I am not an investor, I am an engineer.”
He also revealed that he does not even own any publicly traded stock with the exception of Tesla.
Musk did acknowledge that “when fiat currency has negative real interest, only a fool wouldn’t look elsewhere.” Bitcoin is “almost as bs as fiat money,” Musk had noted previously. He also defended Tesla’s decision to acquire Bitcoin by noting that it’s “adventurous enough for an S&P 500 company.”