Bank of America sees no good reason to own bitcoin, other than “pure price appreciation”. The company’s strategists found that the “protection benefits against cryptocurrency inflation are not particularly apparent”. Bank of America also claims that bitcoin does not offer diversification benefits and is “impractical as a wealth storage or payment mechanism”.
Bank of America sees a good reason to own bitcoins
A Bank of America team led by strategist Francisco Blanch said in a report published on Wednesday that “there is no good reason to own bitcoin unless you see prices going up”. Blanch is head of Global Commodities, Equity Derivatives and Quantitative Cross-Asset Investment Strategies at Bank of America Merrill Lynch Global Research.
Strategists wrote that “Bitcoin has become … correlated to risky assets, is not linked to inflation and remains exceptionally volatile, making it impractical as a wealth deposit or payment mechanism”. They continued:
The portfolio’s main argument for maintaining bitcoin is not diversification, stable returns or protection against inflation, but rather the price appreciation, a factor that depends on the bitcoin’s demand exceeding supply.
Regarding the use of bitcoin as a hedge against inflation due to its fixed supply, Bank of America strategists concluded that, based on their data, the “bitcoin inflation protection benefits are not particularly apparent”.
Strategists also downplayed the benefits of cryptocurrency diversification. The Bank of America report states that the price of bitcoin is more positively correlated “with stocks and commodities, while neutral / slightly correlated with port assets, such as the dollar and U.S. treasury bills”. In addition, its “correlations with risky assets, such as MSCI World, tend to move in parallel, even between asset classes”.
Bank of America strategists elaborated: “Looking year after year, we found that bitcoin was positively correlated with CPI inflation in 5 of the previous 9 years, with the biggest correlations in 2014 and 2018 … However, when looking at the Correlations with inflation surprises since 2011, we found that bitcoin has one of the lowest co-movements, lagging behind most asset classes, such as commodities, TIPS and EM FX in particular. “
Bitcoin’s price has repeatedly reached record levels in recent months. At the time of this writing, its price was $ 57,201, an increase of almost 78% since the beginning of the year and about 24% since the beginning of the month. Bank of America says BTC’s price gains were largely driven by institutional buyers who announced major purchases, such as Tesla, Square, Paypal and Elon Musk’s Grayscale Bitcoin Trust.
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