JPMorgan says other big companies are unlikely to copy Tesla's big cryptocurrency bet because of Bitcoin's volatility

JPMorgan says other big companies are unlikely to copy Tesla's big cryptocurrency bet because of Bitcoin's volatility
Elon Musk.Win McNamee/Getty Images
  • Tesla's bold bitcoin bet is unlikely to be followed by other major corporates, according to JPMorgan.
  • Bitcoin's volatility is the main reason that will deter more mainstream companies, strategists said.
  • Adding a 1% Bitcoin allocation "would cause a big increase in the volatility of the overall portfolio."

Don't expect other large companies to follow Tesla's $1.5 billion bitcoin purchase, JPMorgan said on Tuesday.

Bitcoin got a huge boost from the electric-car maker's announcement, which pushed the digital token to a record high of $48,000. But Tesla's 8% bitcoin allocation is unlikely to be followed by more mainstream corporates, according to analysts led by Nikolaos Panigirtzoglou.

"The main issue with the idea that mainstream corporate treasures will follow the example of Tesla is the volatility of bitcoin," the bank said in a Tuesday note.
Advertisement
Experts within the crypto industry largely expect Tesla's bitcoin holding to open up the idea to a whole new class of retail and institutional investors. More corporations appear poised to embrace the world's biggest cryptocurrency and add it to their balance sheets, said Paolo Ardoino, CTO at crypto exchange Bitfinex. According to him, all the stars may be aligning for the digital asset, as mainstream adoption plays out in real time.

Read More: An ex-Merrill Lynch ETF maven shares how to construct a portfolio that's perfect for today's market landscape - including 4 must-have sectors for sustainable returns

Crypto bull Mike Novogratz added his take on Monday, saying he expects "every company in America" to follow in Tesla's footsteps and allow customers to make purchases using cryptocurrencies.
Advertisement

But the more traditional JPMorgan said adding a 1% Bitcoin allocation "would cause a big increase in the volatility of the overall portfolio." Due to Bitcoin's 80% annualized volatility, an allocation of this size could mean a portfolio's volatility rises from 1% to 8%, the bank wrote.

The bank, however, didn't deny that Tesla's endorsement will favor Bitcoin. "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 speculative institutional flows via bitcoin futures as well as retail flows," strategists wrote. How sustained the price surge will be depends on "less speculative" institutional flows like those in the Grayscale Bitcoin Trust.
Advertisement

Read More: GOLDMAN SACHS: Buy these 26 'best of both worlds' stocks set to soar with economic recovery even if interest rates stay low

{{}}