After saying that cryptocurrencies “rank as the poorest hedge for large stock losses, with questionable diversification benefits,” JPMorgan says investors can put 1% of their portfolios in cryptocurrencies. This can help “achieve any efficiency gains in returns adjusted to the overall risk of the portfolio,” explained the company’s strategists.
Investors can allocate 1% of their wallets to Bitcoin, says JPMorgan
JPMorgan Chase now sees benefits in adding a small percentage of bitcoin to a portfolio of multiple assets. The company’s global head of research, Joyce Chang, and vice president of strategic research, Amy Ho, wrote in a note to customers on Wednesday:
In a multi-asset portfolio, investors are likely to be able to add up to 1% of their allocation in cryptocurrencies to obtain any efficiency gains in returns adjusted to the overall risk of the portfolio.
However, the strategists clarified: “Cryptocurrencies are investment vehicles and not financing currencies. Therefore, when seeking to hedge a macro event with a currency, we recommend a hedge through financing currencies such as the yen or the US dollar. “
While many analysts believe bitcoin is a way to hedge against significant fluctuations in traditional asset classes, including stocks, bonds and commodities, JPMorgan has doubts. It was only last week that the investment bank stated that bitcoin was a “secondary economic spectacle”, adding:
Cryptographic assets continue to be classified as the poorest hedge for large stock losses, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are increasing as cryptographic ownership is incorporated .
JP Morgan also said that recent bitcoin prices are well above the cryptocurrency’s fair value estimates. The company also said that conventional adoption increases the correlation of bitcoin with cyclical assets, which increase and decrease with economic changes. This reduces the benefits of bitcoin in diversifying portfolios. However, its most recent report recommends that investors should be able to add a small percentage of bitcoin to their portfolios.
The investment bank has come a long way since its CEO Jamie Dimon called the cryptocurrency a fraud in September 2017. Earlier this month, JPMorgan co-chairman Daniel Pinto said he is certain that the demand for bitcoin “will be [there] at some point. “The executive confirmed:” If over time a class of assets develops that will be used by different asset managers and investors, we will have to be involved. “In addition, the company’s analysts predicted that the price of bitcoin it could reach $ 146,000 with the heating of the cryptocurrency competition with gold.
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