Coindesk Logo

Increased Mainstream Adoption of Bitcoin Cuts Diversification Benefit, JPMorgan Says

Increased Mainstream Adoption of Bitcoin Cuts Diversification Benefit, JPMorgan Says

Increased Mainstream Adoption of Bitcoin Cuts Diversification Benefit, JPMorgan Says

Bitcoin's correlation with traditional markets could "erode" its "diversification value over time."

Bitcoin's correlation with traditional markets could "erode" its "diversification value over time."

Bitcoin's correlation with traditional markets could "erode" its "diversification value over time."

AccessTimeIconJan 21, 2021, 7:17 PM
Updated Aug 19, 2021, 6:44 AM

Presented By Icon

Election 2024 coverage presented by

Stand with crypto

JPMorgan strategists questioned bitcoin's utility as a reliable investment hedge in a memo published Thursday.

  • Calling bitcoin the “least reliable hedge during periods of acute market stress,” strategists Federico Manicardi and John Normand questioned bitcoin's ability to function as reliable diversification investment through times of economic uncertainty.
  • "Mainstreaming is reducing diversification benefits and leading to underperformance during crises," the memo said.
  • Bitcoin's recently heightened correlation with traditional markets, moreover, could "erode diversification value over time" if the strong positive correlation continues, they wrote.
  • Per Coin Metrics data, bitcoin and the S&P 500 have a 180-day correlation of 0.23, a relatively weak relationship, but still significantly stronger than a year ago.
  • Bitcoin's close relationship with price movements in legacy markets and the "mainstreaming" of cryptocurrency investing generally is "potentially converting them from insurance to leverage," the strategists wrote.
  • Bitcoin prices to date have pulled back slightly to below $32,000 at last check after nearly touching $42,000 the first week in January.
  • A similar sentiment was expressed in October 2020 by other JPMorgan strategists who wrote that bitcoin has proven itself to be more of a risk asset, than a safe haven.
  • What could change this pattern, however, is "a more unique macro shock related to much higher U.S. inflation or a breakdown of the payments system," the analysts said.

Disclosure

Please note that our privacy policy, terms of use, cookies, and do not sell my personal information have been updated.

CoinDesk is an award-winning media outlet that covers the cryptocurrency industry. Its journalists abide by a strict set of editorial policies. CoinDesk has adopted a set of principles aimed at ensuring the integrity, editorial independence and freedom from bias of its publications. CoinDesk is part of the Bullish group, which owns and invests in digital asset businesses and digital assets. CoinDesk employees, including journalists, may receive Bullish group equity-based compensation. Bullish was incubated by technology investor Block.one.


Learn more about Consensus 2024, CoinDesk's longest-running and most influential event that brings together all sides of crypto, blockchain and Web3. Head to consensus.coindesk.com to register and buy your pass now.