Does Bitcoin Belong in An Investment Portfolio? JPMorgan says Yes
Heads up, crypto holders. The world’s financial giants are moving in. They’re finally dipping more than their fiat toes into the digital currency waters. And for the “retail investor” as you, an individual trader is called, who has been buying and holding Bitcoin and other digital currencies, this could be a very good thing.
After more than a year of cautiously issuing equivocal guidance, banking giant JPMorgan recently made two significant moves signaling it’s ready to enter the crypto market in force. This week, the bank announced it would offer clients a Bitcoin investment option via a “Cryptocurrency Exposure Basket.”
The stunning news came on the heels of a JPMorgan Research report that said a 1% allocation to crypto in an investment portfolio could be good for balance and risk.
“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies in order to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio,” the JP Morgan Global Research Chair recently said to CNBC.
Both announcements give more than a nod to Bitcoin (BTC) which has surged more than 900% in the past 12 months. It now boasts a market cap of more than $1 Trillion USD, which, as news outlets like to report, is larger than that of Visa and Mastercard combined.
The news from JPMorgan brings rising credibility of digital currencies to the mainstream market. But true to traditional institutional banking form, JPMorgan’s new offering provides a more conservative route into the crypto market.
“The notes do not provide direct exposure to cryptocurrencies but instead are tied to JPMorgan’s basket of 11 unequally weighted stocks that are directly or indirectly related to cryptocurrencies or other digital assets,” a Forbes report explains. “The weights of the stocks in the basket were determined based in part on each company’s exposure to bitcoin and liquidity.”
Stocks currently named in the basket include Micro Strategy, Riot Blockchain, Square, and NVIDIA Corporation, according to the filing with the US Securities and Exchange Commission. The notes, which would come online in May of 2022, “do not provide direct exposure to cryptocurrencies and the performance of the Basket may not be correlated with the price of any particular cryptocurrency, such as bitcoin.”
Sounds a bit like a mutual fund, doesn’t it? And that may be its intent, as investors who want to enter a new market often will choose a mutual fund as a way to minimize risk and exposure.
JPMorgan isn’t the only legacy financial institution to announce new ways for clients to enter the crypto market. Investment bank Morgan Stanley reportedly will offer its “wealthier clients” access to three bitcoin funds.
“Morgan Stanley is only allowing its wealthier clients access to the volatile asset: The bank considers it suitable for people with “an aggressive risk tolerance” who have at least $2 million in assets held by the firm,” CNBC reports. “Investment firms need at least $5 million at the bank to qualify for the new stakes.”
As more mainstream financial groups move from talking about crypto to actually offering crypto products, the value of cryptocurrencies will continue to rise.
“Big players who buy and sell bitcoins have considerable market-moving power,” Deutsche Bank Research said in a new memo. “As long as asset managers and companies continue to enter the market, Bitcoin prices could continue to rise.
“But bitcoin transactions and tradability are still limited. And the real debate is whether rising valuations alone can be reason enough for bitcoin to evolve into an asset class, or whether its illiquidity is an obstacle.”
If these mainstream moves sound a bit too traditional to you, think about this: interest in Bitcoin and other cryptocurrencies is surging. Yet many people who want to enter the crypto market are not entirely familiar with how the digital currency system works. Terms like gas, mining, meme pool and more may seem confusing. But “notes” and “funds” are easier to understand.
So if the big banks are coming in, make way. They’ll bring a wealth of new investors to the digital currency world.
Joyce Pavia Hanson