Bank of America is clearly no fan of bitcoin. In a recent statement, the financial giant claimed that the only reason people were buying it was because the price keeps going up.
Bank of America: Bitcoin Isn’t All It’s Cracked Up to Be
Over the past year, several new arguments have been introduced suggesting why people are suddenly crazy about owning bitcoin. The idea that it’s a hedge tool of some kind or that it’s a store of wealth has gotten a lot of people interested. The idea that it can somehow protect one against inflation and the fact that it’s technology is so diverse. These and many other arguments suggest the benefits of bitcoin, and the notion that it can diversify one’s portfolio doesn’t hurt either.
But per a recent report issued by Bank of America, all these arguments are null and void. The company claims that there is no intrinsic value with bitcoin and that there is “no good reason to own” it. The report states that the currency cannot – and does not – diversify portfolios the way people have been led to believe. It doesn’t protect against inflation, and it doesn’t do half of the extraordinary things individuals think it does.
Per Bank of America, the only reason to own bitcoin is because the price experienced another massive boom. The document explains:
Looking year by year, we find that bitcoin has been positively correlated with CPI inflation in five out of the nine past years, with the largest correlations in 2014 and 2018… However, when looking at correlations with inflation surprises since 2011, we find that bitcoin has among the lowest co-movements, lagging most asset classes such as commodities, TIPS and EM FX.
Bank of America also claims that bitcoin, over the years, has become heavily associated with other risk assets such as the stock market, and really holds no ties to fiat currencies such as the U.S. dollar or the euro. This is dangerous because the institution says that so long as this correlation continues, there is no diversification of portfolios to be had.
The document explains:
As such, the main portfolio argument for holding bitcoin is not diversification, stable returns or inflation protection, but rather sheer price appreciation, a factor that depends on bitcoin demand outpacing supply.
Others Feel Differently
By contrast, the world’s number one digital currency appears much more positive in the eyes of institutions like Citi Private Bank. The company’s chief investment officer David Bailin explained that he sees the currency doing rather well in the future given how interested people have become in BTC and the crypto space.
However, he did comment that the meteoric rise the currency has experienced worries him a bit, and that he feels there are better investment opportunities out there such as solar power, satellite technology and big data.