Tesla’s investment in bitcoin won’t trigger wave of corporate demand for BTC, says JPMorgan
Many see MicroStrategy and Tesla’s investments as kicking off a wave of companies investing in Bitcoin in the near future. However, investment bank JPMorgan argues that Bitcoin’s price volatility could deter companies from emulating the decision to invest in BTC.
While crypto traders speculate that big companies will copy Tesla’s decision to invest in Bitcoin, investment bank JPMorgan disagrees. Strategists at the investment bank Bitcoin Code, led by Nikolaos Panigirtzoglou, wrote in a note reported by Bloomberg on Wednesday:
“The main problem with the idea that mainstream corporate ‘treasurers’ will follow Tesla’s lead is Bitcoin’s volatility.
Bitcoin on balance sheet the risk of the entire portfolio
Tesla, the Fortune 500 electric car maker led by Elon Musk, announced its $1.5 billion worth of Bitcoin investments on Monday, sending the cryptocurrency to new record highs above $48,000. Crypto traders now expect other companies to follow suit. They argue that Tesla has confirmed bitcoin’s attractiveness as a reserve asset.
However, according to strategists at JPMorgan, even a small exposure to Bitcoin would significantly increase the risk of a corporate portfolio, and this could discourage others from holding BTC on their balance sheet.
Corporate treasury portfolios are typically filled with bank deposits, money market funds and short-dated bonds, which means annualised volatility – or the range of fluctuation over the course of a year – is around 1%.
That’s how JPMorgan strategists explained it, adding that 1% bitcoin exposure would cause a significant increase in a portfolio’s volatility to as much as 8%.
JPMorgan does not dispute the positive impact of Tesla news
However, the bank’s strategists acknowledged the positive impact of the Tesla investment on the bitcoin market:
‘There is no doubt that this week’s announcement has abruptly changed the short-term trajectory for bitcoin, bolstering inflows and helping bitcoin break out above $40k.
JPMorgan had been rather bearish on BTC’s price trajectory last month after the bitcoin price failed to hold above $40,000. The price of the leading cryptocurrency stagnated in the $30,000-$40,000 range for over three weeks after hitting the then all-time high of $41,962 on January 8.
The powerful breakout from this range came on Monday after Tesla announced its investment in BTC. For what could be next for the bitcoin price, see our analysis of bitcoin yesterday.