Jefferies global head of equity strategy, Christopher Wood, has removed a 10% Bitcoin allocation from his model portfolio. This decision stems from concerns that advances in quantum computing could potentially compromise the security of the cryptocurrency and its long-term viability as a store of value for pension-style investors.
Quantum Concerns Drive Portfolio Shift
Wood disclosed this portfolio adjustment in his widely read "Greed & Fear" newsletter. He highlighted a growing sentiment within the Bitcoin community that quantum computing capabilities, which could pose a threat to Bitcoin's cryptography, might be closer than previously anticipated, possibly only a few years away instead of a decade or more.
The security of the Bitcoin network hinges on sophisticated cryptography to safeguard its tokens and validate transactions. Current computing technology is incapable of breaking this cryptography in any practical manner. However, the advent of quantum computers could fundamentally alter this landscape, potentially enabling attackers to reverse-engineer private keys from public ones.
Wood emphasized that any threat to Bitcoin's mining process is "potentially existential." He explained that such a threat would undermine the core concept of Bitcoin as a reliable store of value, thereby challenging its position as a digital alternative to gold.
Wood had been an early institutional proponent of Bitcoin, initially incorporating it into his portfolio in December 2020. This move was influenced by the widespread stimulus measures and concerns about dollar debasement during the pandemic era. He subsequently increased the Bitcoin allocation to 10% in 2021. In his latest move, he is reallocating this 10% weighting, distributing 5% to physical gold and the remaining 5% to gold-mining stocks.
Intensifying Debate Over Quantum Risks
The discussion surrounding the potential quantum threat to Bitcoin gained significant traction following a notable slump in the cryptocurrency's price on October 10th of last year. In response to these concerns, prominent Bitcoin developers have actively pushed back against the notion that quantum computing presents an immediate risk.
Nic Carter, a partner at Castle Island Ventures, stated in a December post on X that Bitcoin developers are exhibiting a state of "denial" regarding the quantum computing risk. Adam Back, affiliated with Blockstream, has refuted this characterization.
Justin Thaler, a research partner at a16z and a computer science professor at Georgetown University, published an analysis that argued against the urgency of the quantum threat. His research suggested that "timelines to a cryptographically relevant quantum computer are frequently overstated — leading to calls for urgent, wholesale transitions to post-quantum cryptography."