Mag 7 Returns Would Improve With Bitcoin Replacing Tesla: StanChart

While bitcoin BTC$92,507.30 proponents commonly view the largest cryptocurrency as a digital version of gold, a new report from global bank Standard Chartered argued investors should see it more like a tech stock with some extra benefits.

Led by Geoff Kendrick, the StanChart team said bitcoin's correlation with the Nasdaq has "almost always" been stronger than with gold, the old-school safe haven asset. While BTC may have a role as a place to hide in instances of financial instability like the 2023 regional banking crisis or what might be the unsustainable U.S. debt trajectory, the report said, the reality is that there's rarely a need for such hedges, thus its increasing behavior as more like a traditional tech stock.

"Investors can view BTC as both a hedge against traditional finance and as part of their tech allocation," said Kendrick. But, at least "in the short term, BTC may be better viewed as a tech stock than as a hedge against TradFi issues," he added.

Playing with the idea of bitcoin as part of a tech portfolio, the report proposed a remodel of the index of the so-called Magnificent 7 (Mag 7) stocks — the mega-cap tech names that have driven overall market returns of late, Apple, Alphabet, Microsoft, Nvidia, Amazon, Meta and Tesla (TSLA). This new "Mag 7B" would swap out Tesla for bitcoin.

The result? The Mag7B produced consistently higher risk-adjusted returns than the original group over the past seven years, reinforcing BTC's role in a tech-focused portfolio, said Kendrick. The Mag7B outperformed the Mag7 on average by around 1% with nearly 2% lower volatility on an annual basis, a key benefit to institutional investors and large asset allocators, he continued.

"BTC should be seen as serving multiple purposes in investor portfolios. This would open up the possibility of even more institutional buying," Kendrick noted.

Asset managers have been advocating for including bitcoin in investment portfolios for diversification purposes. For example, BlackRock, the world's largest asset manager, recommended considering an up to 2% BTC allocation in traditional stock and bond portfolios. Meanwhile, asset managers like 21Shares and Bitwise have launched exchange-traded funds (ETFs) combining gold and bitcoin as complementary assets.