JP Morgan and Yellen Criticize Bitcoin
In a note sent to its clients, JP Morgan’s analysts described Bitcoin as an “economic side show” that represents a weak hedge against a drop in stocks. The bank said that the current BTC price is substantially higher than its natural value and added that the mass adoption of the cryptocurrency reinforces its correlation with cyclical assets, which means that diversifying into Bitcoin does not bring as many benefits anymore.
“Crypto assets continue to rank as the poorest hedge for major drawdowns in equities, with questionable diversification benefits at prices so far above production costs, while correlations with cyclical assets are rising as crypto ownership is mainstreamed,” said JP Morgan’s analysts.
The world’s largest cryptocurrency hit a new all-time high today. The rise in BTC price also boosted other cryptocurrencies, with Ethereum (ETH) price also hitting a new record high near the $2,000 handle.
BTC is up 45% since the start of February, driven by increasing interest in the cryptocurrency among major investors and companies. Over the past few weeks, companies like Tesla, Mastercard, and BNY Mellon made massive investments in Bitcoin; however, many still feel skeptical about BTC due to its high volatility.
In a similar fashion, Treasury Secretary Janet Yellen warned investors they should be particularly cautious with certain parts of the stock market. In an interview with CNBC, the former Fed Chair also said that higher equity valuations are no surprise given the low-interest rates and the easy monetary policy from the US central bank.
“Well, partly we’re in a very low interest rate environment. And while valuations are very high, in a world of very low interest rates, price earnings, tight multiples tend to be high. That said there, you know, may be sectors...where we should be very careful,” stressed Yellen.
Yellen’s statement was a response to CNBC’s question about her opinion on the current situation in the US stock market where stock indexes are hitting record highs amid the coronavirus pandemic that continues to hamper the country’s economy.
When asked about Bitcoin, she described it as a “highly speculative asset,” citing the levels of volatility the cryptocurrency has registered over the years.
On the other hand, Tesla’s Elon Musk continues to promote investing in the cryptocurrency market. He said yesterday that holding Bitcoin feels slightly better than holding traditional cash.
“However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere,” Musk wrote in a tweet.
“Bitcoin is almost as bs as fiat money. The key word is ‘almost’.”
Musk’s Tesla recently disclosed an investment of $1.5 billion in Bitcoin as well as intentions to start accepting the cryptocurrency as a payment method.
Bitcoin (BTC) price has continued to push higher despite renewed criticism from JP Morgan and Treasury Secretary Janet Yellen.
About the Author
Luigi Wewege is the Senior Vice President and Head of Private Banking at Caye International Bank. Outside of the bank, he serves as an instructor at the FinTech School which provides online training courses on the latest technology and innovation developments within the financial services industry. Luigi is also the published author of "The Digital Banking Revolution."