Nick’s Note: On Monday, Palm Beach Letter analyst Greg Wilson told you about JPMorgan’s new bullish stance on the cryptocurrency space—and what it means for the sector’s future.
Below, in part 2, Greg shows you the best way to profit from this news…
By Greg Wilson, analyst, The Palm Beach Letter
They call it the 60/40 rule.
For decades, it’s been the formula for building a stable, long-term growth portfolio.
The way it works is you diversify your portfolio with a mix of 60% stocks and 40% bonds.
In good times, stocks give you capital appreciation. In bad times, bonds cushion the fall of stocks and provide income. Combined, you get relatively stable, long-term growth.
The Wall Street term for this is Modern Portfolio Theory.
Surprisingly, this hasn’t always been the narrative for building a portfolio.
It wasn’t until 1952 that Harry Markowitz published a paper called “Portfolio Selection,” the foundation for what’s now called Modern Portfolio Theory.
Prior to that, the perception of a portfolio was very different.
Many followed the work of John Burr Williams and his book The Theory of Investment Value, which was published in the 1930s.
The focus at that time was on dividends. And the chief concern of the investor was price.
Little consideration was given to adding bonds to your portfolio. It just wasn’t part of the playbook.
But with Markowitz’s paper, the narrative started to change. No longer was price the only consideration for investment. Markowitz also wanted investors to consider risk.
In Wall Street-speak, it’s the quest for the best risk-adjusted returns. In other words, you want to achieve the best return with as little risk as possible.
Recently, JPMorgan published a paper that promises to change Modern Portfolio Theory once again.
In fact, they talk about a new addition that they call the “holy grail for investors.”
Below, I’ll tell you what it is and how you can benefit.
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The New Narrative
I’ll tell you about the “holy grail” in a moment.
But first, it’s important that you understand the new narrative coming out of Wall Street. We wrote about it in Monday’s Palm Beach Daily:
They’re realizing that adding bitcoin to their portfolios will give them better risk-adjusted returns—meaning better returns with less volatility.
It’s also the conclusion from JPMorgan’s recent research report on bitcoin and cryptocurrencies. Some are calling the report the “Bitcoin Bible.”
Let’s unpack what it means.
Research is showing that bitcoin is uncorrelated to other assets. That means that whether the price of gold, stocks, bonds, or commodities goes boom or bust, bitcoin is unaffected.
That’s important to Wall Street.
Why? Because they build portfolios of uncorrelated assets to tame risk.
The classic example is the 60/40 mix of stocks and bonds we mentioned earlier. When one asset class goes up, the other generally goes down.
Owning just one can lead to big ups and downs. But owning both smooths out the performance.
Done right, a well-built portfolio can earn better returns with less volatility. Or in Wall Street terms: better risk-adjusted returns.
It’s every portfolio manager’s dream.
So when JPMorgan comes out and says bitcoin can help investors diversify portfolios, it’s a big deal.
It’s a green light to the entire industry that bitcoin is a viable asset class and needs to be owned.
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Enter the Holy Grail for Bitcoin
The truth is the holy grail for bitcoin is no secret. You heard it here first from Palm Beach Letter editor Teeka Tiwari.
Teeka noted that in 2017, the Chicago Mercantile Exchange (CME) and Chicago Board Options Exchange (CBOE) launched bitcoin futures and options products. He went on to say:
The CME and CBOE just paves the way for what I think will be an even bigger event. And that’s a launch of a new bitcoin exchange-traded fund (ETF).
And that will be huge. An ETF will make it as easy to buy bitcoin as it is to buy a stock. With just one mouse click, you’ll own bitcoin.
It’s the same conclusion JPMorgan reached in its report.
They concluded that a bitcoin ETF would be the holy grail for investors as it would give them easy access to bitcoin in a liquid and safe market.
And like Teeka, they think the launch of bitcoin futures and options paves the way for a bitcoin ETF.
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What to Do Now
If you haven’t bought bitcoin already, you could just wait for an ETF to come out.
Of course, by the time an ETF comes out, the price will likely have run up in anticipation.
Right now, there are 10 bitcoin ETFs waiting for approval. It’s only a matter of time before one gets approved.
So the smart move is to buy bitcoin directly, before the crowd rushes in.
Best,
Greg Wilson
Analyst, The Palm Beach Letter
P.S. Wall Street’s acceptance of bitcoin is just one of countless signs that bitcoin is here to stay. And when the big money starts buying into this market, last year’s gains will look like a small blip…
In fact, on April 2, a massive shift in how big institutions treat bitcoin will take place. And it could result in a 3,400% gain from today’s prices.
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