Bank of America Says the Only Good Reason for Holding Bitcoin is for the Mere Price Increase – Bitcoin News
Bank of America sees no good reason to own Bitcoin other than “a mere price increase”. The company’s strategists noted that “the inflation-hedging benefits of cryptocurrency are not particularly obvious”. Bank of America also claims that Bitcoin offers no diversification benefits and is “impractical as a store of wealth or a payment mechanism.”
Bank of America sees a good reason to own Bitcoin
A Bank of America team, led by strategist Francisco Blanch, said in a report released Wednesday that “there is no good reason to own Bitcoin unless you see prices rise.” Blanch is Head of Global Commodities, Equity Derivatives and Cross-Asset Quantitative Investment Strategies at Bank of America Merrill Lynch Global Research.
The strategists wrote, “Bitcoin is … correlated with risk-weighted assets, not tied to inflation, and remains exceptionally volatile, making it impractical as a store of wealth or a payment mechanism.” They continued:
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.
Regarding the use of Bitcoin as a hedge against inflation due to its fixed offering, strategists at Bank of America concluded that “Bitcoin’s inflation-hedging benefits are not particularly obvious based on their data.”
The strategists also downplayed the diversification benefits of the cryptocurrency. The Bank of America report says that Bitcoin price “correlates more positively with stocks and commodities, while neutral / slightly correlates with port facilities like the dollar and US Treasuries”. In addition, the “correlations with risk-weighted assets like MSCI World tend to move in lockstep even across asset classes”.
Bank of America strategists explained, “If we look year after year, we see that Bitcoin has been positively correlated with CPI inflation for 5 of the 9 previous years, with the largest correlations in 2014 and 2018 . However, looking at the correlations with inflation surprises since 2011, we find that Bitcoin is among the lowest co-moves, lagging behind most asset classes such as commodities, TIPS and EM FX. “
Bitcoin’s price has hit record highs repeatedly in the past few months. At the time of writing, the price is $ 57,201, up nearly 78% since the start of the year and about 24% since the start of the month. According to Bank of America, the BTC price hikes were mainly due to institutional buyers announcing large purchases, such as Elon Musk’s Tesla, Square, Paypal, and the Grayscale Bitcoin Trust.
What do you think of Bank of America’s opinion on Bitcoin? Let us know in the comments below.
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