JPMorgan expects Bitcoin to return 10% a year. Here is why that number is harder to hold than it looks
J.P. Morgan Asset Management has put a long-term return forecast on Bitcoin for the first time. Its 2027 Long-Term Capital Market Assumptions, the 31st edition of the firm’s annual 10 to 15 year outlook, project a compound return of about 10% a year, according to reports on the document. That is higher than the firm’s 7.5% forecast for US large-cap stocks. JPMorgan has not added Bitcoin to its main portfolio models, though, and the reason it gives is the most useful lesson in the report.
What JPMorgan actually said
The firm says that for the first time it has put a range on Bitcoin returns. It has not included Bitcoin in its main covariance matrices, the models it uses to estimate how assets move together when building portfolios. Instead, it built a separate, smaller set comparing Bitcoin with a subset of public-market assets.
JPMorgan said Bitcoin’s volatility and unstable correlations with other assets remain an obstacle to wider portfolio inclusion. Reports on the document put its volatility assumption at about 55% a year, against roughly 18% for US large-cap stocks. The analysts said they could revisit the approach if volatility falls and correlations settle, particularly as regulation, liquidity and price discovery improve.
So this is a forecast, not an allocation. JPMorgan is telling clients what it expects Bitcoin might return, not recommending they own it.
The lesson: average returns and compound returns are not the same
Long-term forecasts like this one are usually quoted as compound returns, the rate at which money actually grows over time. That is different from the simple average of yearly returns, and the gap between the two widens as volatility rises.
A simple example shows why. Imagine two investments, each with an average return of 10% a year over two years. The first gains 10% in year one and 10% in year two. A $100 stake grows to $121. The second gains 60% in year one and then loses 40% in year two. The average is still 10%, but the $100 becomes $160 and then $96. The investor has lost money.
This effect is often called volatility drag. Large losses do more damage than equally large gains repair, because a fall applies to a bigger or smaller base than the rise before it. A common rule of thumb is that the compound return sits below the average return by roughly half the variance, the square of volatility.
For an asset with 18% volatility, that drag is modest, about 1.6 percentage points. At 55% volatility, the same rule of thumb suggests a gap of roughly 15 percentage points. In other words, for Bitcoin to compound at 10% a year at that level of volatility, its average yearly return would need to be far higher. Treat that as an illustration of the mechanism rather than JPMorgan’s own arithmetic.
Why this matters for investors
The headline comparison, 10% for Bitcoin against 7.5% for US stocks, compares compound returns but not the ride. An investor who sells after a deep drawdown may never collect the long-term compound figure at all. Position size matters for the same reason. A small allocation to a highly volatile asset can be held through large swings; a large one is far harder to sit through.
This is also why JPMorgan’s correlation caveat matters. Portfolio models rely on assets behaving in reasonably predictable ways relative to each other. If Bitcoin sometimes trades like a technology stock and sometimes on its own, it is hard to say how much it diversifies a portfolio, and the firm says that instability impairs a strategic allocation.
There is a countercase. Bitwise chief investment officer Matt Hougan welcomed the forecast but argued that a 55% volatility assumption is too high, pointing to Bitcoin’s falling volatility over the past 15 years. If he is right, the drag would be smaller and the case for an allocation stronger.
What to watch next
Bitcoin’s realized volatility. A sustained fall would be the clearest sign that JPMorgan’s main obstacle is easing.
Correlation behavior. Watch whether Bitcoin keeps moving with the Nasdaq during risk-off periods or starts to trade more independently.
Next year’s LTCMA. If JPMorgan moves Bitcoin into its main covariance matrices, that would be the shift from forecasting to modeling, and a far stronger signal than the 10% figure.
The practical takeaway: a high expected return does not tell you whether you can hold an asset long enough to earn it. Volatility decides that, and for now JPMorgan thinks Bitcoin’s volatility is still too high.
This article was written by Eamonn Sheridan at investinglive.com.
