- Banking giants, JP Morgan has outlined three key reasons why investors should add bitcoin to their investment portfolios.
- According to JP Morgan, small cryptocurrencies holding would improve portfolio efficiency
- Cryptocurrencies offer high returns and moderate correlations, making them good investment options
The global leader in financial services, JP Morgan has outlined 3 essential reasons why Bitcoin should be a part of every investor’s portfolio. This was revealed in a document released by JP Morgan’s team on Cross-Asset Strategy.
Every Investor Should Consider Adding Bitcoin to Their Portfolio
Earlier this week, a report titled JPMorgan “What cryptocurrencies have and haven’t done for multi-asset portfolios” was published by the firm’s head of Cross-Asset Strategy division, John Normand. The report explores cryptocurrencies’ use for portfolio diversification.
The document focuses on how investors would benefit from adding Bitcoin to their portfolio, as well as the volatility associated with the digital currency.
The report opens by stating that Bitcoin currently holds the record for the fastest ever price rise of any valuable asset. When compared to different must-have assets over time, like gold in the ’70s, Japanese equities in the ‘80s, the U.S. tech stocks in the ‘90s, Chinese equities in the 2000s, and FANG stocks in the 2010s.
On the Flipside
- British analysts have noted that investing in Cryptos is a high-risk speculative investment
- According to UK’s Financial Conduct Authority (FCA), digital currency investors are in danger of losing all their money
3 Reasons Why Investors Should Hold Bitcoin
One major point of criticism for Bitcoin has always been its high volatility. In the document, John Normand asked why an Investor would consider holding a volatile asset like Bitcoin, and answered by giving three reasons.
The first reason why an investor would need to add Bitcoin to his portfolio is that equity and credit valuations look record-rich for a very young business cycle. Bitcoin recently celebrated its twelfth anniversary.
An industry that is as young and promising as cryptos, provides investors with the opportunity for immense growth in the future. This makes Bitcoin, the leading asset in the industry, a must-have asset for investors.
The second reason according to the document is that conventional hedges like DM bonds barely serve as insurance when US 10Y rates are near 1%. It further explains that because of the collapse of DM bonds and their negative yields to investors in Japan and Europe and 1% in the U.S., investors have been forced to look for alternative assets to invest in.
Lastly, it notes that there are some as-yet-unseen shocks (materially higher inflation, economically-debilitating cyber attacks, or climate catastrophes) coming to the traditional financial industry.
As such, the JPMorgan analyst believes these shocks could favor assets operating outside the traditional financial industry, Cryptocurrencies.
Because of the mainstream adoption and ownership of cryptos, there is a rising correlation with cyclical assets, potentially converting them from insurance to leverage. Nonetheless, he noted that for long-term portfolio efficiency:
Small (up to 2%) allocations to cryptocurrencies still improve portfolio efficiency due to high returns and moderate correlations.
For investors looking to hold for the short-term, the news is not all good. According to the document, cryptocurrencies may be the poorest hedge for intra-month and intra-quarter holding. In contrast, a long term price forecast of Bitcoin by another JPMorgan puts the price of bitcoin at around $146K.