Why JPMorgan says “economic side show” and the poorest hedge against a decline in equity prices

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Analysts overturned Bitcoin amid JPMorgan’s co-chairman Daniel Pinto’s statement that the acceptance of Bitcoin is unavoidable at some point.

Analysts at the American investment firm JPMorgan Chase have made another sceptical comment about Bitcoin (BTC) arguing that its present price is much higher than its fair value.

In a monthly memo for investors, JPMorgan argued that cryptocurrencies like Bitcoin are a “economic side show” and the weakest hedge against dropping share prices, Reuters reports Friday.

Analysts said that the widespread acceptance of Bitcoin raises its association with cyclical assets, rendering it a less attractive commodity for portfolio diversification:

“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed.”

In January 2021, JPMorgan strategists John Normand and Federico Manicardi argued that Bitcoin had become a cyclical commodity, rather than a market stress hedge.

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A cyclical asset refers to stocks that are trend-setting according to a certain market cycle. For example, companies in the discretionary industries such as restaurants, hospitality, airlines, furniture, automotive and other industries. As previously stated by Cointelegraph, the issue of whether Bitcoin is a cyclical or non-cyclical asset is still open to discussion, with many industry players firmly claiming that cryptocurrency is a big protection against a financial downturn.

The new remarks from JPMorgan come shortly after the company’s co-chairman, Daniel Pinto, said that the bank would eventually have to get interested in Bitcoin after increasing client demand. In October 2020, when Bitcoin was trading around $13,000, JPMorgan predicted that Bitcoin’s price would double or triple in the long run.

At the time of writing, Bitcoin is valued at $52,764, up more than 70% in the last 30 days. After breaching the $50,000 price mark on Feb. 16, Bitcoin briefly reached a new all-time high of over $53,000 earlier today, according to data from CoinGecko‘s crypto tracking website.

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Source: CoinGecko

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