Investment bank JPMorgan strategists have questioned the usefulness of bitcoin as a reliable hedging tool due to the growing popularity of cryptoasset investments.
In a memo released this week, JPMorgan bank strategists Federico Manicardi and John Normand have questioned Bitcoin’s ability to function as a safe investment for diversification in times of economic uncertainty. They called bitcoin “the least reliable hedging instrument in times of severe market stress.”
“The growing popularity of the first cryptocurrency reduces the benefits of diversification and leads to a decrease in its effectiveness during crises,” the memo says.
Moreover, Bitcoin’s recently increased correlation with traditional markets could “erode the value of diversification over time” if strong positive correlation persists. According to CoinMetrics, Bitcoin and the S&P 500 have a 180-day correlation of 0.23 – a relatively weak correlation, but still stronger than a year ago.
According to the memorandum, bitcoin’s close relationship with price movements in traditional markets and the “growing popularity” of investing in the first cryptocurrency, as a rule, “potentially turns it from insurance to leverage.”
Despite the growth in recent weeks, the night of January 22 became difficult for the first cryptocurrency – the “bears” increased their pressure and the bitcoin rate dropped to $ 28,800. Then the BTC price recovered to $ 30,500. Now bitcoin is trading at $ 31,217.
As a reminder, according to a recent report from JPMorgan, a Bitcoin ETF will be beneficial for the first cryptocurrency in the long run, but it could hurt the price of BTC at first by raising money from the Grayscale Bitcoin Trust.
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