Bitcoin is becoming a cyclical asset rather than a hedge, as it still lacks the features to become the new digital gold.
JPMorgan strategists John Normand and Federico Manicardi disagree with some of their colleagues about bitcoin (BTC), arguing that the cryptocurrency is evolving into a cyclical asset rather than a reliable hedge.
According to the JPMorgan analysts, bitcoin’s recurring rallies indicate it behaves like a cyclical asset instead of providing protection during market stress. Normand and Manicardi warned that investors who hold bitcoin for portfolio diversification may be taking on more risk than they realize.
In a report cited by Bloomberg, the analysts said bitcoin is the least dependable hedge during periods of acute market stress. They wrote: “The integration of crypto ownership is increasing correlations with cyclical assets, potentially turning them from insurance into leverage.”
The strategists say their research shows bitcoin’s popularity among retail investors strengthens its link to cyclical assets. They suggest the cryptocurrency is not a direct rival to gold, but it can serve as a way for people to protect themselves against loss of confidence in a country’s currency or financial system.
Cyclical assets typically follow the broader economic cycle. Their performance depends on economic conditions. Companies with cyclical stocks produce and sell goods and services that do well when the economy is strong and fall sharply when it weakens. Cyclical sectors often include airlines, hospitality, autos, furniture and restaurants.
JPMorgan strategists present conflicting views
Normand and Manicardi’s claims contradict views from other JPMorgan strategists led by Nikolaos Panigirtzoglou. According to Panigirtzoglou, bitcoin’s adoption is occurring at the expense of gold, as it draws investors away from the precious metal.
Panigirtzoglou’s team has argued that institutional adoption of bitcoin is only getting started, while gold has long benefited from institutional investment. “If this medium- and long-term thesis proves correct, gold prices will face a structural headwind in the coming years,” the strategists said.
In another report released earlier this month, the team led by Panigirtzoglou predicted that bitcoin could reach $146,000 over the long term. They see this scenario as possible if BTC continues to compete with gold as an asset class.
JPMorgan contains a range of perspectives on bitcoin. The leading cryptocurrency continues to split opinion as market participants debate its proper role as either a currency or an asset.