Wall Street giant JP Morgan has poured cold water on Bitcoin’s recent rise describing it as an “economic sideshow” and a poor hedge against a stock market slide.
The cryptocurrency has been on a tear recently as mainstream groups have joined the fans who claim it is the new ‘digital gold’ and a viable alternative to traditional fiat currencies.
Bitcoin passed US$50,000 mark for the first time earlier this week having been trading below US$10,000 as recently as October.
The bulge-bracket bank said it was hard to justify the current valuation, adding as it gets more widely adopted its appeal diminishes as the correlation with cyclical assets increase.
This reduces the benefits of diversifying into bitcoin, the investment bank said in a memo seen by Reuters.
Bitcoin was trading at US$52,525 just shy of its record high of US$52,640 seen on Wednesday.
Tesla boss Elon Musk has been responsible for much of the recent rise after he said the electric car maker would buy US$1.5bn worth of the cryptocurrency and allow it to be used to buy its vehicles, sending its value up 45% this month alone.
Mastercard has also said it will start accepting payment in the cryptocurrency.
“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 at JP Morgan said.
The bank’s analysts also questioned the possibility of the currency replacing gold as a currency hedge.
Bitcoin would need to rise to US$146,000 to equal total private-sector investment in gold via exchange-traded funds or bars and coins, said the bank.
— Elon Musk (@elonmusk) February 19, 2021
In his latest tweet about the crypto, Musk said yesterday that Bitcoin was “simply a less dumb form of liquidity than cash.”
The Tesla boss also congratulated the Perseverance space mission to Mars.
Musk is determined to put people on the planet through his SpaceX programme and tweeted his approval.