Traders should not rely too much on a repeat of Tesla’s Bitcoin purchases this week by other major corporations, JPMorgan Chase & Co. analysts warned.
“While bitcoin received support this week from Tesla’s announcement, the 8% cryptocurrency holding is unlikely to be repeated by more mainstream corporations. The main problem with the idea that mass corporations will follow Tesla’s lead is the volatility of bitcoin, ”writes strategist Nikolaos Panigirtzoglu.
Tesla on Monday announced a $ 1.5 billion investment in Bitcoin and plans to accept cryptocurrency as a means of payment. Subsequently, the price of BTC quickly climbed to $ 48,000, and the attention of experts turned out to be focused on choosing the next potential candidate for the acquisition of cryptocurrency.
Panigirtzoglu notes that typically corporate portfolios consist of bank deposits, money market funds and short-term bonds, which is why their annual volatility or fluctuations in value are about 1%. Adding a 1% bitcoin allocation to such a portfolio “would significantly increase the volatility of the entire portfolio.” For example, if the annual volatility of bitcoin is 80%, then the portfolio volatility can rise to 8%.
“Regardless of how many corporations follow Tesla’s lead over time, there can be little doubt that this week’s announcement dramatically altered Bitcoin’s short-term trajectory and helped it break above $ 40,000,” Panigirtzoglu writes. He expects the sustainability of this rally to depend on “less speculative” institutional investment inflows, including the Grayscale trust.
JPMorgan had a bearish outlook in January when it wrote that a drop in bitcoin below $ 40,000 could cause an outflow of investors from the market, while analysts said that it was not enough to overcome this level of institutional capital. The latest analysis became the bank’s fourth critical publication regarding cryptocurrency in the last two months, while its rate continues to rise.