Jefferies' global equity strategist Christopher Wood has made a significant portfolio shift. In the latest Greed & Fear report, he announced plans to remove the entire 10% allocation to Bitcoin this week. The decision stems from long-term concerns about the rise of quantum computing.
Reallocation to Gold and Mining Stocks
The 10% Bitcoin allocation will be reallocated evenly. Five percent will go into gold bullion. The remaining five percent will be invested in gold-mining stocks. This move represents a strategic pivot towards traditional safe-haven assets.
Quantum Computing: A Long-Term Threat
The report clarifies that it does not expect a sharp drop in Bitcoin prices in the near term due to the "quantum issue." However, from a long-term pension portfolio perspective, Bitcoin is now seen as a less reliable store of value. This assessment prompted the exit from Bitcoin exposure.
"While GREED & fear does not believe that the quantum issue is about to hit the Bitcoin price dramatically in the near term, the store of value concept is clearly on less solid foundation from the standpoint of a long-term pension portfolio. For that reason, GREED & fear will remove the 10 per cent allocation to Bitcoin this week," the report stated.
Bitcoin's Impressive Past Performance
The report acknowledged Bitcoin's strong historical performance. Since the initial allocation on 17 December 2020, Bitcoin has surged by 325 percent. In comparison, gold bullion gained 145 percent over the same period.
Why Quantum Computing Poses a Risk
Recent months have seen renewed debate about quantum computing's potential threat to Bitcoin. There is growing concern that powerful quantum computers could emerge within a few years, not decades as previously thought.
Traditional computers process information sequentially. Quantum computers use qubits that can process many possibilities simultaneously. This makes them far more powerful for certain calculations, including complex cryptographic problems.
Bitcoin's security depends on cryptography. Generating a public key from a private key is straightforward. Reversing this process is practically impossible with current technology. It would require trillions of years.
However, the arrival of quantum computers relevant to cryptography (CRQCs) could change this. They might allow private keys to be derived from public keys in mere hours or days.
Understanding Bitcoin Mining
The report also explained Bitcoin mining. This is the process of creating new Bitcoins and verifying transactions on the network through computing power. The total supply is limited. The last Bitcoin is expected to be mined in 2140.
Any threat to this system is viewed as potentially existential. It undermines Bitcoin's role as a digital alternative to gold.
Community Response and Vulnerabilities
Greed & Fear observed that discussions are already ongoing within the Bitcoin community. They are debating how to respond. Options include whether to "burn" quantum-vulnerable coins or risk them being stolen.
Studies cited in the report indicate that 20-50% of all Bitcoin in circulation may be vulnerable. This amounts to approximately 4-10 million BTC. The risk is particularly high at exchange and institutional addresses due to address re-use.
Lost coins further increase this risk. An estimated 2-3 million BTC were lost in 2017. That number could be 4-5 million today. Address re-use exposes public keys, creating another significant vulnerability.
These mounting concerns have ultimately led Greed & Fear to move away from Bitcoin. The focus now shifts to gold and gold-mining stocks as more stable long-term holdings.
