JPMorgan: Bitcoin’s Volatility Four Times that of S&P 500, Portfolio Construction Depends on Risk Appetite

JPMorgan global market strategist Jack Manley and research analyst Sahil Gopal have released a report titled “Is Cryptocurrency Worth a Place in Portfolio Construction?” The report points out that much of the appeal of cryptocurrencies lies in their potential for excess returns, but challenges remain. While Bitcoin’s returns have been impressive, its volatility is also significant—four times that of the S&P 500.

The role of cryptocurrencies in portfolio construction largely depends on risk tolerance. Cryptocurrencies are inherently unpredictable: there is little visibility on future price movements, and although blockchain technology is exciting, there are few barriers to entry. This means that new tokens with improved functionality could render existing ones obsolete (and therefore worthless) as they enter the market. Consequently, for most investors, any allocation to cryptocurrencies in a portfolio should be kept sufficiently small to ensure that it does not undermine overall portfolio goals and achieves good diversification, even in the event of a significant sell-off.