Warning of a potential correction in the price of BTC, JPM analysts argue that the volatility of the asset does not allow it to be a reliable means of protection against stocks.
JPM’s View on Fluctuating BTC
Strategists at JPMorgan Chase & Co have warned that the price of BTC could be in bubble territory as it is well above their estimated fair value. In addition, analysts believe that Bitcoin and other cryptocurrencies have failed to serve as a hedge for stocks.
After several months of positive attitude towards BTC, and the statement that the asset has taken part of the gold market share due to the rapid growth in demand, JPM has changed its mindset on the cryptocurrency.
First, strategists led by Nikolaos Panigirtsoglu have questioned the sustainability of Bitcoin’s record growth, saying that the asset’s volatility is preventing it from taking off even further.
During a recent analysis, analysts once again touched on the infamous volatility of the cryptocurrency. They argued that the double-digit price swings coming from the asset turned it into an “economic show” and a poor defense against a potential drop in inventory.
“Crypto assets are still considered the worst protection against large drawdowns in stocks, with questionable diversification benefits at prices far above production costs, while the correlation with cyclical assets is growing as cryptocurrency ownership becomes mainstream.”
Although JPM strategists were unable to provide an accurate fair value for BTC, which is quite strange, they argued that the cryptocurrency is well above this level. Thus, they joined Deutsche Bank in saying that the asset is in a bubble and may soon reverse its trend and head towards a sharp correction.
Previously, they firmly believed that the price of Bitcoin could continue to rise as long as there was demand for Bitcoin Trust at Grayscale’s. However, according to their analysis, it seems that even the growing demand for GBTC and the emergence of large companies such as Tesla will not be able to raise the cryptocurrency.
Banks are still afraid of the BTC
In contrast to the opinion of JPM, Rick Ryder makes his own arguments. The managing director of the world’s largest investment fund, BlackRock, recently said that the organization will “do a little bit of work” with Bitcoin as a possible option to diversify its portfolio. He argued that BlackRock has a lot of money because traditional hedges don’t work in such situations.
The next to join the opinion of Rick Ryder was the famous golden bull Geoffrey Gundlach.
Popular gold advocate Jeffrey Gundlach, CEO of DoubleLine Capital, backed BTC, saying that a crypto asset is a better investment than the precious yellow metal.
Gundlach tweeted that despite being a strong supporter of gold and a long-term bear on the US dollar, for the past six months he has preferred to remain neutral on both.
Earlier this year, Gundlach declared his hatred of Bitcoin, joining other traditional financial experts in calling the asset a “bubble”.
“Bitcoin, to me, is kind of in bubble territory right now in terms of how it operates,” Gundlach told CNBC.
The so-called bond king has warned investors to stay away from Bitcoin, saying the asset could overheat due to its growth and that it is in “bubble territory”.
His decision to end support for both financial instruments may have been the result of Bitcoin’s historic rally, which has been an important topic of discussion over the past few months.
Recently, the world’s largest cryptocurrency has received a large influx of funds from institutional investors who are trying to insure assets against inflation.
Investors used to look at gold as a hedge against inflation, but that changed dramatically last year when Bitcoin became the best performing asset despite being hit by the coronavirus (COVID-19) pandemic.
Recall that in March 2020, the leading cryptocurrency fell below $ 4,000 and quickly recovered, ending the year on a high note of almost $ 20,000.
Gundlach, speaking about Bitcoin, noted that “a large amount of liquid poured into the funnel creates a flow”, while confirming that the cryptocurrency is a “stimulating asset”, which unfortunately cannot be said about gold.