Increased Mainstream Adoption of Bitcoin Cuts Diversification Benefit, JPMorgan Says

<div id="node-0" class="article-pharagraph"><p class="text">JPMorgan strategists questioned bitcoin’s utility as a reliable investment hedge in a memo published Thursday.</p></div><div id="node-1" class="article-list"><ul><li>Calling <a href="">bitcoin</a> 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. </li><li>"Mainstreaming is reducing diversification benefits and leading to underperformance during crises," the memo said.</li><li>Bitcoin's recently heightened correlation with traditional markets, moreover, could "erode diversification value over time" if the strong positive correlation continues, they wrote. </li><li>Per <a href="" target="_blank" rel="noreferrer noopener">Coin Metrics</a> data, bitcoin and the S&amp;P 500 have a 180-day correlation of 0.23, a relatively weak relationship, but still significantly stronger than a year ago. </li><li>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. </li><li>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.</li><li>A similar sentiment was expressed in October 2020 by other JPMorgan strategists who <a href="">wrote</a> that bitcoin has proven itself to be more of a risk asset, than a safe haven. </li><li>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. </li></ul></div>