JPMorgan predicts pension funds will sell $175 billion in stocks after the second quarter, Bitcoin may suffer as a result

The U.S. financial giant JPMorgan Chase is expected to sell approximately $175 billion worth of stocks from its pension fund as part of its quarterly investment portfolio rebalancing strategy. With the increasing correlation between Bitcoin and the stock market, does this mean that Bitcoin will once again fall alongside U.S. stocks?

Pension Funds to Sell Stocks

Despite the recovery of U.S. stocks since the sharp drop in March, with the Nasdaq Composite Index hitting a historical high in June, the stock market still remains filled with a sense of dread. Many financial institutions, financial media, and even international financial organizations such as the International Monetary Fund (IMF) hold a pessimistic view on the future trends of the financial markets. According to a report by the Financial Times, analysts from the U.S. financial giant J.P. Morgan in a report released last week went as far as predicting the possibility of pension funds selling stocks.

Pension funds' investment strategy aims to maintain a diversified portfolio of stocks, bonds, and other assets, with a tendency to rebalance their portfolios at the end of each quarter. The selling in March 2020 led to a sharp decline in bonds and stocks, but the three major U.S. indices - the S&P 500, Dow Jones Industrial Average, and Nasdaq Composite Index - have seen remarkable rebounds since hitting their lows on March 23. The Federal Reserve's decision to cut interest rates led to a significant decrease in bond yields, making them less attractive as hedging assets and expanding the flow of funds into the securities market.

J.P. Morgan analysts estimate that during the uptrend in the stock market from March to June, pension funds increased their allocation to stocks in their portfolios. However, they may now choose to reduce their stock holdings at the end of the second quarter.

This view is consistent with previous reports. According to a report on June 29th, top financial institutions such as Morgan Stanley, J.P. Morgan, and Goldman Sachs all believe that economic uncertainty has not dissipated, and many variables could lead to a further economic and stock market downturn, such as high unemployment rates, declining corporate productivity, or a second wave of the pandemic, all of which could result in an economic recession. Financial institutions even predict that the uncertainty in the financial markets in 2021 will drive a significant increase in the price of the safe-haven asset - gold.

The Future of Bitcoin

The biggest question now is whether the decline in U.S. stocks will once again trigger a collapse in Bitcoin. Since March, Bitcoin has maintained a certain degree of correlation with the S&P 500, especially during the downturns in March and June. The following chart is a comparison of the correlation between SPX/BTC, SPX/GOLD compiled by Larry Cermak, the research director of blockchain media The Block. It is clear from the chart that since May, gold and U.S. stocks have turned negatively correlated, but Bitcoin and U.S. stocks still maintain a positive correlation, indicating a high probability that Bitcoin will plummet alongside U.S. stocks during a downturn.

However, not everyone shares this view. For example, Bloomberg predicted in its latest research report that the upward trend in precious metals such as gold may boost the rise of Bitcoin. Cryptocurrency analyst Scott Melker also claimed that Bitcoin is fundamentally a digital asset unrelated to physical assets, emphasizing that traders should focus more on the negative correlation between cryptocurrencies and the U.S. dollar rather than the correlation with the S&P 500. He stated:

"Historically speaking, the negative correlation between Bitcoin and the U.S. dollar is far more attractive than the short-term positive correlation with the SPX."