Bank of America sees no good reason to own bitcoin other than ‘pure price appreciation’. The firm’s strategies found that the “benefits of hedging inflation are not very clear.” Bank of America also claims that bitcoin does not offer diversification benefits and is ‘impractical as a store of wealth or payment mechanism’.
Bank of America sees one good reason to own Bitcoin
A Bank of America team led by strategist Francisco Blanch said in a report published Wednesday that there’s 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 that ‘Bitcoin … is correlated with risk assets, it is not linked to inflation and remains extremely volatile, making it impractical as a store of wealth or payment mechanism.’ They continued:
The main portfolio argument for holding bitcoin is not diversification, stable returns or inflation protection, but mere price increases, which depend on the demand for bitcoin exceeding supply.
On the use of bitcoin as a hedge against inflation due to its fixed supply, the Bank of America strategists concluded that bitcoin’s “benefits for inflation hedging are not particularly clear.”
The strategists also underestimated the diversification benefits of cryptocurrency. According to the Bank of America, bitcoin’s price is more positively correlated “with equities and commodities, while neutral / slightly correlated with port assets such as the dollar and the US treasury.” In addition, the “correlations with risk assets such as MSCI World tend to move even in asset classes.”
The Bank of America strategists elaborated: ‘If we look year after year, we find that bitcoin has been positively correlated with CPI inflation in 5 of the last 9 years, with the biggest correlations in 2014 and 2018 … If, however, looking at correlations with inflation surprises since 2011, we find that bitcoin has one of the lowest co-movements, and especially most asset classes such as commodities, TIPS and EM FX. ”
Bitcoin’s price has repeatedly reached record highs in recent months. At the time of writing, the price stands at $ 57,201, an increase of almost 78% since the beginning of the year and about 24% since the beginning of the month. Bank of America says the BTC price increases have been driven primarily by institutional buyers announcing major purchases, such as Eles Musk’s Tesla, Square, Paypal and the Grayscale Bitcoin Trust.
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