Bitcoin (BTC-USD) has been called an “economic side show” compared to the rise of fintech, and a poor hedge against decline in equity prices, by analysts at JP Morgan.
The world’s largest cryptocurrency is currently trading at $52,784 (£37,722), a fresh record set on Friday, after a stellar run in the last year. However, this is considerably above JP Morgan’s estimates of fair value.
In a note for clients, seen by Reuters, the investment bank said that the mainstream adoption of Bitcoin increases its correlations with cyclical assets, which reduces the benefits of diversifying into Bitcoin.
“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,” analysts said.
Earlier this month, Tesla invested $1.5bn in the cryptocurrency, and said it may even start accepting it as payment for its products.
In a filing with the SEC, Tesla said it has “invested an aggregate $1.5bn in bitcoin,” and “may acquire and hold digital assets from time to time or long-term.”
It added that it expects to “begin accepting bitcoin as a form of payment for [its] products in the near future, subject to applicable laws and initially on a limited basis, which [it] may or may not liquidate upon receipt.”
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Despite its rise in the last year, the cryptocurrency remains extremely volatile and experts continue to remain sceptical about using it as an investment.
“Bitcoin’s competition with gold as an ‘alternative’ currency will likely continue as millennials become a more important component of investors’ universe and given their preference for ‘digital gold’ over traditional gold,” JP Morgan said.
However, it added: “Bitcoin would need to rise to $146,000 in the long-term for its market capitalisation to equal total private-sector investment in gold via exchange-traded funds or bars and coins.”
It comes as Musk said on Thursday that owning Bitcoin was slightly better than holding cash.
“To be clear, I am not an investor, I am an engineer,” he said on Twitter. I don’t even own any publicly traded stock besides Tesla.”
He added: “However, when fiat currency has negative real interest, only a fool wouldn’t look elsewhere. Bitcoin is almost as bs as fiat money. The key word is “almost”.
Musk also defended Tesla’s move to invest by saying Bitcoin is “adventurous enough for an S&P 500 company.”
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