Bitcoin has been winning hearts and minds throughout 2020 amid unprecedented central bank money printing and the coronavirus-induced digitalisation of day-to-day life.
Now, a top market strategist at the research arm of New York-based global investment manager AllianceBernstein, which has $631 billion in assets under management, has admitted he’s “changed [his] mind” about bitcoin.
“I have changed my mind about bitcoin’s role in asset allocation,” Fraser-Jenkins, co-head of Bernstein Research’s portfolio strategy team, wrote in a note to clients this week that was first reported by bitcoin and cryptocurrency news outlet Coindesk.
Fraser-Jenkins, following in the footsteps of a host of legendary investors that have named bitcoin as a potential hedge against inflation this year, now recommends investors can add a small amount of bitcoin to their portfolios when bitcoin’s average monthly return is higher than 3%, with “the driver of bitcoin … similar to that as for gold.”
“The resulting allocation to bitcoin is low, but then within this simple optimization framework the allocation to some other asset classes is zero, so in that context bitcoin seems to empirically be potentially significant,” Fraser-Jenkins wrote.
Bitcoin’s correlation with other major assets has increased this year but he also warned that bitcoin is a liquid asset and can be quickly sold off, resulting in wild swings in the bitcoin price—and bitcoin may not “exactly move in a way that would counteract inflation in a given fiat currency.”
“From a narrow empirical point of view the downward shift in [the volatility] of bitcoin makes it more desirable but its increased correlation points the other way,” Fraser-Jenkins added, pointing to a fall in bitcoin’s volatility over the last three years as well as a decline in bitcoin’s relative volatility to both gold and stocks.
However, while Fraser-Jenkins noted that “the greater role that governments will likely play in economies makes cryptos potentially more appealing,” this could also “hinder crypto.”
“If they get in the way of policy implementation, then governments might seek to constrain them,” Fraser-Jenkins wrote, echoing warnings others have raised about potential government crackdowns on bitcoin and cryptocurrencies.
Last month, Ray Dalio, the billionaire founder and co-chairman of the world’s biggest hedge fund, Bridgewater Associates, warned that governments will “outlaw” bitcoin if it continues to grow and starts to become “material.”
“The attractions of cryptos are what also make them potentially an annoyance for policymakers,” according to Fraser-Jenkins. “Cryptos do have a place in asset allocation….for as long as they are legal!”