As the world’s leading financial services company, JP Morgan has identified three basic reasons why Bitcoin should be part of every investor’s portfolio. This is disclosed in the document in the JP Morgan team’s “Cross Asset Strategy”.
Every investor should consider adding Bitcoin to their portfolio
Earlier this week, John Normand, the company’s director of cross-asset strategy, released a report titled JP Morgan Chase, “What Cryptocurrencies Do, Multi-Asset Investing Is Nothing.” The report examines the use of cryptocurrencies to diversify investment portfolios.
The document focuses on how investors can add Bitcoin to their portfolio and take advantage of the volatility associated with digital currencies.
The report first pointed out that Bitcoin is currently on the record for the fastest price increase in the history of any valuable asset. Compared to major assets in different time periods such as gold in the 1970s, Japanese stocks in the 1980s, American technology stocks in the 1990s, Chinese stocks in the 2000s, and FANG stocks in the 2010s.
3 reasons why investors should hold Bitcoin
The main criticism of Bitcoin has always been its high volatility. In that document, John Normand asked why investors are considering holding volatile assets like Bitcoin and gave three reasons.
- Bitcoin is still very young
Investors need to add Bitcoin to their portfolio is because stock and credit valuations appear to be at record highs in a very young economic cycle. Bitcoin recently celebrated its twelfth anniversary.
A young and promising industry like cryptocurrency offers investors enormous opportunities for future growth. This makes Bitcoin a leading asset in the industry and a major asset for investors.
- Bitcoin can serve as insurance
Traditional hedging transactions (like DM bonds) can hardly serve as insurance and the 10-year interest rate in the US is close to 1%. It was also pointed out that the collapse of DM bonds and their negative returns for Japanese and European investors, as well as 1% of US bonds, forced investors to find alternative assets.
- Bitcoin benefit from economic shock
It was pointed out that the traditional financial industry is exposed to some invisible shocks (rising inflation rate, economically unfavorable cyber attacks or climate disasters).
Hence, JPMorgan analysts believe these shocks can benefit cryptocurrencies that are beneficial outside of the traditional financial industry.
With the universal acceptance and ownership of cryptocurrencies, the relevance of cyclical assets continues to grow and it is possible to shift them from insurance to leverage. He still pointed out that to improve the efficiency of long-term investment portfolios: “Small (up to 2%) allocations to cryptocurrencies still improve portfolio efficiency due to high returns and moderate correlations.”
For investors looking to hold onto short-term stocks, this news isn’t all good. According to the document, cryptocurrencies are possibly the worst hedging tool for monthly and quarterly stocks. In contrast, another JPMorgan Chase’s long-term price prediction for Bitcoin assumes the price for Bitcoin is $146k.