According to Bank of America, the main argument for owning Bitcoin is “pure price increase”, not diversification or inflation protection
Robinhood reported an increase in women’s interest in Bitcoin
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- Bank of America’s commodity strategists say the main argument in favor of owning Bitcoin is “sheer price increase.”
- BofA data found that Bitcoin’s inflation hedge benefits are “not particularly obvious”.
- Bitcoin investors often argue that the coin can act as a portfolio hedge against inflation.
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According to Bank of America, there is no other reason for investors to have Bitcoin in their portfolios than to hope the price will rise.
A team led by commodities strategist Francisco Blanch said in a report released Wednesday that there is “no good reason to own Bitcoin unless you see prices rise,” and that the coin has no benefits for diversifying Portfolios or inflation protection.
The strategists noted that bitcoin investors have argued frequently over the past year that the coin’s firm supply could protect portfolios from inflation, although the BofA data concludes that “the benefits of hedging inflation are not particularly obvious”.
“If we look year after year, we find that Bitcoin has been positively correlated with CPI inflation in 5 of the past 9 years, with the greatest correlations in 2014 and 2018 … However, if we have seen the correlations with inflation surprises since Looking at 2011, we find Bitcoin is one of the lowest co-movements and is particularly behind most asset classes such as commodities, TIPS and EM FX, “according to the BofA.
The strategists also said that Bitcoin is correlated to other risk-weighted assets, reducing its diversification benefits. BofA data found that Bitcoin was positively correlated with stocks and commodities and neutral / slightly negatively correlated with port facilities like the dollar and US Treasuries.
The price of Bitcoin is up around 953% over the past year, and the BofA found that, taking into account volatility, the cryptocurrency has a significantly high risk-adjusted return compared to other assets.
“As such, the portfolio’s main argument for holding Bitcoin isn’t diversification, stable returns or inflation protection, but a mere price increase, a factor that depends on whether bitcoin demand outperforms supply,” added BofA.
BofA Global Research
BofA Global Research