In the most recent edition of the GREED & Fear newsletter, senior financial strategist Christopher Wood has announced a significant shift in his investment recommendations, electing to remove Bitcoin from his sample portfolio. Citing advancements in quantum computing as a potential threat to the cryptographic foundations of Bitcoin, Wood outlined how these developments could undermine the cryptocurrency’s perceived durability and security.
Wood, who holds the position of Global Head of Equity Strategy at Jefferies, had previously introduced a Bitcoin allocation in his portfolio back in December 2020. He increased this allocation to 10% in 2021, motivated by inflation fears stemming from government stimulus measures during the COVID-19 pandemic. However, he now expresses increasing concern about the long-term risks posed by quantum computing to cryptocurrencies like Bitcoin, which currently relies on the SHA-256 hashing algorithm—a system that, while robust against traditional computational means, could be vulnerable to future quantum advancements.
Reports as early as 2022 have suggested that quantum computers may be capable of breaking Bitcoin’s security by the 2030s. Should such a breakthrough occur unexpectedly, it could precipitate a drastic decline in Bitcoin’s value, leading to chaos in the cryptocurrency market. In light of this potential threat, Wood recommends reallocating funds from Bitcoin to a more traditional investment strategy that includes a 5% stake in physical gold and another 5% in gold mining stocks.
Despite Wood’s concerns, many within the cryptocurrency development community remain optimistic. Current quantum computing technology is not yet advanced enough to compromise existing cryptographic algorithms, leaving Bitcoin secure for the time being. The progress in quantum computing is gradual and transparent, allowing developers ample time to adapt their technologies if necessary. Furthermore, should quantum computers indeed be able to breach Bitcoin’s security, it would have widespread implications across global cybersecurity, affecting everything from traditional banking systems to government encryption protocols.
Advancements in post-quantum cryptography are already being pursued, with the potential for cryptocurrency developers to leverage these innovations to enhance security. Wood maintains, however, that the ongoing discourse between cryptocurrency developers and quantum computing advancements will ultimately serve as a “long-term positive for gold.” Historically, gold has proven to be a stable asset, yielding an average annual return of 11% over the past fifty years. This stability positions gold as an appealing option for investors seeking to safeguard their assets in the face of uncertain technological developments in the realm of cryptocurrency.
