JP Morgan has outlined three key reasons why investors should add bitcoin to their investment portfolios. Small allocations to cryptocurrencies would “improve portfolio efficiency due to high returns and moderate correlations,” JPMorgan’s analyst explained.
JP Morgan Sees Benefits of Hedging With Bitcoin
JPMorgan released a report last week entitled “What cryptocurrencies have and haven’t done for multi-asset portfolios.” Published by the firm’s head of Cross-Asset Strategy division, John Normand, the report explores cryptocurrencies’ use for portfolio diversification.
Before discussing the reasons to have BTC in portfolios, the report acknowledges that “Bitcoin has already achieved the fastest-ever price appreciation of any must-have asset to which it is often compared,” 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.
While noting that bitcoin is highly volatile, the analyst hypothetically asked: “Why bother considering an unconventional and high-volatility hedge?” He then answered his own question by giving three reasons.
Firstly, “Equity and credit valuations look record-rich for a very young business cycle,” the report details. Secondly, “conventional hedges like DM bonds barely serve as insurance when US 10Y rates are near 1%.” 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.
The third reason concerns “some as-yet unseen shocks (materially higher inflation, economically-debilitating cyber attacks or climate catastrophes),” which the JPMorgan analyst believes “could favor an asset that operates outside conventional financial channels.” For example, Normand cited extraordinary monetary and fiscal stimulus over the past year, which creates general concerns about…