A day after the world’s largest asset manager informed regulators that two of its funds are open to investing in bitcoin, JPMorgan advised clients to be wary of the cryptocurrency.
Analysts at JPMorgan advised clients this week that bitcoin is not a suitable investment as a hedge against inflation, citing its still-extreme volatility.
Their warning came hard on the heels of an even bigger mainstream endorsement of bitcoin by the world’s largest asset manager, BlackRock, which revealed in Jan. 20 filings with the U.S. Securities and Exchange Commission (SEC) that its BlackRock Funds V and BlackRock Global Allocation Fund have added bitcoin futures to their eligible investments, both for speculation and hedging.
The filings added that “bitcoin futures in which the Funds may invest are cash-settled bitcoin futures traded on commodity exchanges registered with the CFTC.”
Blackrock has $8.7 trillion in assets under management, which explains why many cryptocurrency investors reacted so enthusiastically when the firm added Bitcoin futures to the hedge funds’ permissible investments.
“Blackrock is now jumping into Bitcoin,” Morgan Creek Digital hedge fund co-founder Anthony “Pomp” Pompliano tweeted when the news broke. “This has gone from a contrarian idea to a consensus idea on Wall Street.”
The move should not come as much of a surprise given recent statements by a senior BlackRock executive. As Modern Consensus reported in late November, the firm’s chief investment officer, Rick Rieder, argued that Bitcoin could replace the traditional hedge, gold.
“It’s hard to say whether it’s worth the price it is trading at today. But do I think it is a durable mechanism that—do I think could replace gold to a large extent?” he asked. “Yeah I do, because it’s so much more functional than passing a bar of gold around.”
The JPMorgan analysts, on the other hand, suggested that Bitcoin cannot replace gold. John Normand and Federico Manicardi called it the “least reliable hedge during periods of acute market stress,” Bloomberg reported.
They claim that “the mainstreaming of crypto ownership is raising correlations with cyclical assets, potentially converting them from insurance to leverage.” Still, they acknowledge Bitcoin’s appeal for investors who are worried about policy shocks, according to the article.
Of course, Blackrock’s 497 filings with the SEC require risk warnings, which for Bitcoin included “significant price volatility,” as well as potential regulatory actions affecting Bitcoin or cryptocurrency exchanges, market illiquidity, fraud, and price manipulation.
Still, BlackRock is moving into Bitcoin, and only time will tell who is right. Either way, Bitcoin is undeniably winning over the trust of increasingly sophisticated investors and institutions—so much that many argue they are the cause of the most recent bull run. Furthermore, some argue that this trend will accelerate as more mainstream financial firms and investors jump in.
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