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Is Bitcoin a hedge or a risk for your portfolio?

Photo of: Nathan VDH
by Nathan VDH

While Bitcoin is down sharply, JPMorgan analysts warn investors. They believe that using BTC to diversify a portfolio is a risk due to the cyclical nature of the asset.

The wrong signals are building up for Bitcoin. Its value fell below $29,000, with a sharp decline during the week. This trend lends further credibility to the assumption of Guggenheim Partners’ Chief Investment Officer.

For Scott Minerd, Bitcoin will not set a new historical record in 2021. “And we’re likely to see a complete retreat to the 20,000 level,” he warns. In a note, JPMorgan experts also warn investors.

John Normand and Federico Manicardi focus on investors using cryptocurrencies for portfolio diversification. According to them, this exposes them to risk. The reason? Bitcoin is more of a cyclical asset than a hedge.

And the bank’s specialists are driving home the point that Bitcoin is “the least reliable hedge in times of acute market stress”. And almost paradoxically, it is the increasing adoption of cryptocurrencies that could justify this trend.

This adoption would lead to an increasing correlation of Bitcoin with the rest of the assets in the market. “The democratization of crypto ownership increases correlations with cyclical assets, potentially converting them from insurance to leverage,” they consider.

Pro-crypto proponents may see this analysis as a return of JPMorgan to the camp of Bitcoin’s detractors. Its analysts qualify their remarks. They point out that “Bitcoin has already achieved the highest price appreciation ever recorded for a key asset. ยป

This is regardless of whether “cryptocurrencies are ultimately seen as a financial innovation or a speculative bubble. “Decrypt also reminds us that Normand and Manicardi were right in the past.

In 2018, they predicted that the next major financial crash would occur in 2020. However, this can be explained by a global health crisis that no one could have predicted or anticipated. The scenario of a new crypto crash must therefore be weighed.

In any case, Bitcoin is not the only crypto-active company to experience a decline in its price. The global value of the cryptocurrencies market is now around 871 billion dollars. Bitcoin’s share is almost 64%.