Unreliable Hedge Asset? JPMorgan Analysts Claim Mainstreaming Erodes Bitcoin's Value as "Diversified Asset"

Two analysts from JPMorgan raised questions about the actual effectiveness of Bitcoin as a reliable hedge tool in a recent report.

Mainstream Adoption Weakens Bitcoin's Advantage

The report, co-authored by JPMorgan strategists John Normand and Federico Manicardi, who successfully predicted the major financial crisis of 2020, highlights that whether cryptocurrencies are financial innovations or speculative bubbles, Bitcoin has achieved the fastest price appreciation in the history of all asset classes. However, the current price far exceeds production costs, and the focus has shifted to whether returns will revert to the mean. The analysts further point out that Bitcoin is the least reliable hedge asset during severe market pressures, and with institutional involvement, the correlation between Bitcoin and traditional markets will strengthen, ultimately eroding its value as a diversified asset.

"Mainstream adoption is increasing the correlation of Bitcoin with cyclical assets and weakening its advantage as a diversified asset, transforming it from a hedge asset to a leveraged asset that may not perform well in times of crisis."

According to Coin Metrics data, the 180-day correlation between Bitcoin and the S&P 500 index is approximately 0.23, indicating a relatively weak correlation, but significantly higher compared to a year ago.

Bitcoin Volatility is Key

JPMorgan's latest analysis report seems to differ significantly from its analyses in the past few months. According to reports, JPMorgan's global market strategist Nikolaos Panigirtzoglou previously stated in a report that Bitcoin is competing for investment funds with value reserve assets such as gold and fixed-income instruments. In the long term, there is still approximately 4.6 times growth potential for Bitcoin's market value (equivalent to Bitcoin rising to $146,000), but Panigirtzoglou emphasizes that before Bitcoin reaches this level, its volatility must first converge with gold to attract more institutional investors and gain regulatory approval to release more investment products in traditional financial markets. However, this process may take a long time.

"Squeezing out this 'alternative currency' from gold means Bitcoin still has significant upside potential in the long run. However, the convergence of volatility between Bitcoin and gold is unlikely to happen in the short term. In our view, this will be a multi-year process."