According to analysts at JPMorgan Chase, the current stage of growth in the cryptocurrency market has put Bitcoin on a par with cyclical assets.
That is, now BTC can hardly be considered a hedging tool – that is, risk reduction – during crises. Experts John Normand and Federico Manicardi argue that anyone who bets on Bitcoin as a portfolio diversifier is at risk. They called the cryptocurrency «the least reliable way to hedge in times of acute market stress.» Let’s talk about the situation in more detail.
First, an explanation. Bitcoin is traditionally considered a good tool for reducing the risks of lovers of classic investment instruments. Since the maximum number of BTC coins is fixed, and their release takes place in accordance with strict rules – which significantly distinguishes cryptocurrency from conventional currencies – most often, changes in coin prices do not depend on what is happening in the world.
Moreover, the relationship of Bitcoin with stocks and various indices is often negative, that is, the cryptocurrency may well be profitable while everything else falls.
As such, Bitcoin and some of the major cryptocurrencies have a reputation for being an excellent haven of value and a tool to mitigate investor risk. Although representatives of JP Morgan disagree with this. Here’s what the analysts said.
Should you buy Bitcoin?
Here is a quote from an analyst report in which they share their research findings. The replica is given by Cointelegraph.
The actualization of cryptocurrency ownership increases the correlation with cyclical assets, potentially turning them from “insurance” in case of a crisis into a kind of leverage.
Cyclical assets are commonly referred to as stocks that follow trends in the economy as a whole, which means that their performance depends on the business cycle. These companies produce goods and services in demand when the economy is doing well. Hence, these are some of the first things people give up when the economy weakens. Cyclical stocks include securities of companies in the restaurant, hospitality, aviation, furniture, automotive and other sectors.
This means that experts believe that Bitcoin can be a good choice for investors for a certain period of time. We are confident that the same can be said for all stocks, because the stock market also develops in accordance with the cycles of growth and decline.
Apparently opposing the notion that Bitcoin is “digital gold,” analysts nevertheless recognized that cryptocurrency could be a suitable investment for investors worried about political turmoil and systemic devaluation of conventional currencies. That is, if the growth stage of Bitcoin or other coins coincides with problems in the economy and the world as a whole, then they can protect investors from possible problems.
Note that this is not the first time that JP Morgan representatives have spoken about the prospects for Bitcoin, and sometimes their statements contradict each other. For example, in December last year, bank analysts admitted that cryptocurrency is able to overtake gold in market capitalization. This should be facilitated by the fact that large investors are increasingly paying attention to BTC, given its current growth.
The sharp rise in dollar inflation amid the coronavirus pandemic has made Bitcoin one of the most profitable investments in the past year. The cryptocurrency dropped to 5 thousand amid the March fall in markets, but in the end it was able not only to reach its all-time high from December 2017, but also to double it. Recall that the new record for the Bitcoin rate is now just below 42 thousand dollars. However, the cryptocurrency has not yet overcome this mark.
One way or another, throughout its history, the main cryptocurrency has shown tremendous profitability. We believe that this fact cannot be ignored by all investors – and especially those who have not yet managed to contact cryptocurrencies and understand the structure of the blockchain.
In the meantime, the conclusions of analysts are puzzling. They recognized Bitcoin as a cyclical asset, that is, one whose rate is subject to changes in the trend of long-term growth and decline. However, this is happening all over the place – the same stocks are also going through stages of bullish and bearish trends. This means that, in fact, there is nothing wrong with the behavior of BTC, because this is a healthy situation for any asset.
So for now, there is no point in being disappointed in cryptocurrencies. Especially considering the profitability that many of them have brought in recent months.
