February 28, 2021

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JPMorgan: Bitcoin No Good as Market Hedge

2 min read

Bitcoin is no hedge against market crashes, said analysts from JPMorgan in a report today.

The cryptocurrency, which has a market capitalization of $590 billion, is the “least reliable hedge during periods of acute market stress,” wrote strategists John Normand and Federico Manicardi in a widely-shared report today.

If the pandemic-induced market panic of 2020 is any indication, the cryptocurrency-as-market-hedge argument is wafer-thin. When global markets crashed in mid-March last year, Bitcoin tanked to its lowest price in years, $4,200. Since then, as the world’s economy recovered, it has increased to highs of $41,000. 

The analysts said that widespread crypto adoption means that people are instead using cryptocurrencies to make even more money. This means that it’s correlated with the rest of the market.

“The mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage,” they said.

But, “whether cryptocurrencies are judged eventually as a financial innovation or a speculative bubble, Bitcoin has already achieved the fastest-ever price appreciation of any must-have asset.”

In a report last week, JPMorgan’s senior global markets strategist, Nikolaos Panigirtzoglou, said that Bitcoin’s intrinsic value will rise over the coming months as mining activity improves. He said that it could hit $146,000 as goldbugs move their money to Bitcoin. 

Normand and Manicardi, the authors of today’s report, have been right once before. In 2018, the duo was prescient enough to predict that the next great financial crash would occur in 2020. But even broken clocks strike twice. Will their latest blow land?

The views and opinions expressed by the author are for informational purposes only and do not constitute financial, investment, or other advice.

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