Bitcoin is becoming a cyclical asset instead of a hedge as it doesn’t yet possess the features to become the new digital Gold
JPMorgan strategists John Normand and Federico Manicardi disagree with their colleagues regarding Bitcoin (BTC) as they believe that the cryptocurrency is becoming a cyclical asset rather than a hedge.
The analysts at JPMorgan believe that the periodic Bitcoin rallies mean that it is a cyclical asset instead of a hedge against market stress. Normand and Manicardi argued that anyone investing in Bitcoin as a portfolio diversifier is more at risk than they think.
In a Thursday report published by Bloomberg, the analysts said Bitcoin is the least reliable hedge during acute market stress periods. The duo wrote, “The mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage”.
According to the strategists, their research indicates that Bitcoin’s popularity amongst retail investors increases the cryptocurrency’s link with cyclical assets. They suggest that cryptocurrency isn’t a competitor to Gold but can be seen as a way for people to protect against the loss of faith in a country’s currency or financial system.
Cyclical assets are usually stocks that tend to follow the trend in the overall economy. Their performance depends on the business cycle. Companies with cyclical stocks manufacture and sell goods and services that perform well when the economy is in good shape and slump when the economy weakens. Cyclical stocks are usually companies in the airline, hospitality, automobile, furniture and restaurant sectors.
JPMorgan strategists contradict each other
The claims by Normand and Manicardi contradict the thoughts of fellow JPMorgan strategists led by Nikolaos Panigirtzoglou. According to Panigirtzoglou, Bitcoin’s adoption is coming at Gold’s expense as it is drawing investors away from the precious metal.
At the time, Panigirtzoglou’s team had said that Bitcoin’s adoption by institutional investors is only starting while Gold has enjoyed institutional investment for decades. “If this medium to longer-term thesis proves right, the price of Gold will suffer from a structural headwind over the coming years”, the strategists had claimed.
In a separate report earlier this month, the strategists led by Panigirtzoglou predicted Bitcoin’s price touching $146,000 in the long-term. The strategists see this happening as Bitcoin starts competing with Gold as an asset class.
There are varying claims regarding Bitcoin at JPMorgan. Bitcoin continues to split narratives as people debate its rightful place as either a currency or an asset.