Bitcoin is an Unreliable Hedge During Market Upheavals: JP Morgan Analysts

Analysts at JP Morgan have argued against Bitcoin’s (BTC) value proposition as a competitor to gold, saying the largest crypto by market capitalization is not a suitable hedge during periods of market uncertainty.

Bitcoin is Least Reliable as a Hedge During Market Crunches

According to Bloomberg, JP Morgan strategists John Normand and Federico Manicardi have issued a report classifying Bitcoin more as a risk-on asset than as a hedge against market uncertainties. As part of their analysis, the due remarked that BTC was the “least reliable hedge” in periods of severe market drawdowns.

Back in mid-March 2020, during the Black Thursday market crash, panic over the coronavirus pandemic saw a massive liquidation haze overcome the financial market. Bitcoin and cryptos, in general, were not excluded, with the market shedding about 50% of its value.

However, Bitcoin quickly rebounded from the decline that bottomed out at the $3,800 level and was already above $5,000 barely a few days later. Indeed, BTC ended 2020 almost six-fold up from its Black Thursday bottom.

As part of their report, the JP Morgan analysts maintained that Bitcoin had a low correlation with hedges over the last five years. Well, gold, traditionally ascribed to the hedge asset status, is up a meager 70% over the last five years. Meanwhile, Bitcoin is up almost 7,000% within the same period.

Gold also dipped heavily during the March 2020 market crash. The precious metal did post a significant recovery but ended up experiencing massive volatility in the latter part of the year.

Wall Street is Running BTC

Apart from arguing against Bitcoin being classified as a hedge asset, the JP Morgan strategists opined that Wall Street was currently running BTC. Thus, the cryptocurrency has now moved into the realm of cyclical assets.

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An excerpt from their report reads:

“The mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage.”

Indeed, 2020 heralded the long sought after institutional herd with many big-money players adopting Bitcoin. Publicly-listed firms like MicroStrategy added BTC to their balance sheets, with insurance firms and hedge funds joining the trend.

Bitcoin is currently experiencing a price retrace, being down about 8% over the last 24-hour trading period. The current decline also wiped out $900 million in over-leveraged longs as the total crypto market capitalization has also shed over $100 billion.