JPMorgan Sees Tesla Bitcoin Bet as Too Bold for Others to Follow
Don’t count on other large companies to emulate Tesla Inc.’s decision to add Bitcoin to its balance sheet, JPMorgan says.
(Bloomberg) -- Don’t count on other large companies to emulate Tesla Inc.’s decision to add Bitcoin to its balance sheet, according to JPMorgan Chase & Co.
“The main issue with the idea that mainstream corporate treasurers will follow the example of Tesla is the volatility of Bitcoin,” strategists at the bank led by Nikolaos Panigirtzoglou wrote in a note. Still, they argue, its move puts a spotlight on the trend.
Tesla disclosed Monday it invested $1.5 billion in Bitcoin and intends to begin accepting the cryptocurrency as a form of payment. Its announcement sent the digital coin to record highs, pushing its price above $48,000 at one point on Tuesday. Experts are now debating whether the high-profile move will have ripple effects within the industry and whether other public-company CFOs will make similar investments.
Corporate treasury portfolios are typically stuffed with bank deposits, money market funds and short-dated bonds, meaning that annualized volatility -- or the range of swings during the course of a year -- hovers around 1%. Adding a 1% Bitcoin allocation “would cause a big increase in the volatility of the overall portfolio,” wrote the strategists. Such an allocation could mean the portfolio’s volatility rises to 8% due to Bitcoin’s 80% annualized volatility, they said.
“Irrespective of how many corporates eventually follow Tesla’s example, there is no doubt that this week’s announcement changed abruptly the near-term trajectory for Bitcoin by bolstering inflows and by helping Bitcoin to break out above $40k,” wrote JPMorgan’s strategists. How sustained the rally becomes might depend on whether “less speculative” institutional flows materialize -- such as those into the popular Grayscale Bitcoin Trust.
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