JPMorgan Seeing Demand for Bitcoin from Institutional Investors for the “First Time”
The banking giant also released a report for its “private wealth clients” where it calls Bitcoin a “portfolio diversifier” that “beats to its own drum.”
“We’ve seen demand from millennials (and) we’ve seen demand from institutional investors for the first time, as well,” said J.P. Morgan Securities’ Joyce Chang in an interview with CNBC.
But at the same time, they are concerned about the valuation of Bitcoin, whose market cap increased by $700 billion since September compared to just $11 billion of inflows, she said. According to her, demand for alternatives to traditional investments will continue but only to point to Bitcoin’s recent correction along with a major equity drawdown that says it has not been an effective hedge.
Moreover, this demand for alternative assets boosted by the pandemic is leading to a new dynamic in the crypto space, a battle between fintech and banks. The firm’s chair of global research said,
“Fintech is coming into the mainstream from this pandemic as there has really been demand for digital services — less in person transactions.”
The banking giant has also released an educational report to its clients covering the potential and risks of Bitcoin and cryptocurrencies.
The deck, which is for “private wealth clients” and “informational purposes only,” points in its “How others are valuing crypto?” section that Bitcoin sees a “significant upside” based on the number of users, the gold market, and money supply.
JPMorgan also covers Bitcoin’s correlation to S&P 500, gold, dollar, and Treasuries that highlights that “bitcoin is diversifying” but at the same time, “it's not a protection asset.”
While the bank does not think of Bitcoin as gold, when it comes to an investment portfolio, it does have “diversifying properties like gold.” But of course, here, the bank points to its volatility and correlation that refutes the leading digital currency’s comparison to the traditional safe-haven asset.
Additionally, the bank finds it difficult to conclude that outflows from gold are actually flowing into Bitcoin. Still, in the long term, all the correlation falls towards zero as Bitcoin “beats to its own drum.” As such, Bitcoin can be a “portfolio diversifier,” the bank said, “if sized correctly.” But at the same time,
“Bitcoin doesn’t consistently trade like a protection asset or a substitute for gold. If anything in the near term, Bitcoin is more similar to a diversifying risky asset rather than protection akin to Treasuries and gold.”