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 discourage companies from emulating the decision to invest in BTC.
While crypto traders speculate that large companies will copy Tesla’s decision to invest in Bitcoin, investment bank JPMorgan disagrees. Strategists at the investment bank, led by Nikolaos Panigirtzoglou, wrote in a note reported by Bloomberg on Wednesday, February 10th: “The main problem with the idea that mainstream corporate ‘treasurers’ will follow Tesla’s lead is Bitcoin’s volatility.”
If you want to find more details about the price of Bitcoin and why analysts at JP Morgan do not think that Tesla’s investment in BTC will trigger a wave of corporate demand, download for free our companion app. Born2Invest keeps its readers up to date with the latest business news in the world.
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, February 9th, 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 that could discourage others from holding BTC on their balance sheets.
Corporate treasury portfolios are typically filled with bank deposits, money market funds and short-dated bonds, which means annualized 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 doesn’t 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 abruptly changed the short-term trajectory for bitcoin, bolstering inflows and helping bitcoin break out above $40k.”
JPMorgan had been rather bearish on the price trajectory of BTC last month after the price of Bitcoin failed to hold above $40k. The price of the leading cryptocurrency stagnated in the $30,000-$40,000 range for more than three weeks after reaching the then all-time high of $41,962 on January 8th.
The powerful breakout from this range came on Monday, February 8th, after Tesla announced its investment in BTC.
“In January 2021, we updated our investment policy to give us more flexibility to further diversify our cash that is not needed to maintain adequate operational liquidity and to maximize returns. Thereafter, we invested a total of $ 1.50 billion in Bitcoin as part of that policy and may acquire and hold digital assets from time to time or over the long term.”
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