Updated 09 Apr, 2021

JPMorgan: Bitcoin’s Drop in Volatility Makes it More Appealing

JPMorgan: Bitcoin’s Drop in Volatility Makes it More Appealing

JP Morgan


Key Takeaways

  • Bitcoin’s declining price fluctuations offer institutions a chance to join in
  • CEO of JPMorgan, Jamie Dimon releases letter to shareholders, mentions cryptocurrencies

JPMorgan Follows the Crypto Trend

JPMorgan, one of the largest Wall Street investment banks, has been following the cryptocurrency trends and developments since 2017. Initially touting bitcoin as “a fraud” in 2017, CEO Jamie Dimon has been expressing increasing interest to get the bank involved with the crypto space.

One reason being, the investment firm aims to explore the emerging cryptocurrency asset class with the intention to meet client demand. JPMorgan’s customers have been eager to add bitcoin-related products to their portfolio. On that demand, JPMorgan recommended a relatively small allocation of funds to bitcoin.

“In a multi-asset portfolio, investors can likely add up to 1% of their allocation to cryptocurrencies. This will allow them to achieve any efficiency gain in the overall risk-adjusted returns of the portfolio,” JPMorgan strategists said.

Are Bitcoin’s Wild Price Swings Part of its Attraction?

Moreover, the firm said in early April, that the declining volatility in bitcoin actually makes the asset more attractive to institutions waiting on the sideline for a chance to jump on the crypto bandwagon. According to a note by the bank, the drop in bitcoin’s wild price fluctuations could prompt institutions to adopt bitcoin as a low-correlation asset that would enhance and diversify investment portfolios.

High volatility in bitcoin has been a primary reason for institutions to shy away from the digital asset. It “acts as a headwind towards further institutional adoption,” according to the investment firm.

JPMorgan Wants to Stay Ahead of the Curve

Moreover, JPMorgan is determined to stay ahead of the curve when it comes to future of finance and the bank’s role in the future financial system. In a letter to shareholders from Apr 7, CEO Jamie Dimon addresses the “increasingly small role” of banks in the rapidly changing financial environment. Mr. Dimon’s letter highlights that US banks have grown smaller compared with newly emerged fintech companies and shadow banks. While Jamie Dimon does not mention the word bitcoin at all in the 66-page letter, he does mention cryptocurrency.

“Not only are we slow in dealing with the past, but it distracts us from dealing with the future,”. “There are serious emerging issues that need to be dealt with – and rather quickly. The growth of shadow banking, the legal and regulatory status of cryptocurrencies,” says Jamie Dimon.