Christopher Wood, the global head of equity strategy at Jefferies, has removed Bitcoin from his model portfolio, a significant shift from his previous stance where he lauded the cryptocurrency as a hedge against monetary debasement.
Wood disclosed his decision in the latest edition of his newsletter, Greed & Fear, citing that the advancements in quantum computing pose a threat to the foundational security protocols of blockchain networks. He believes this technology is closer than anticipated to undermining Bitcoin's investment case.
Wall Street Economist's Departure from Bitcoin Due to Quantum Computing Threat
Wood, who closely monitors global asset allocation trends, estimates that the risk posed by quantum computing "could only be a few years away rather than a decade or more." He contends that this projected timeline renders Bitcoin unreliable for investors seeking long-term holdings.
As an early institutional proponent of Bitcoin, the Jefferies strategist initially included the cryptocurrency in his model portfolio in December 2020, a period when governments were actively promoting stimulus measures in response to concerns about currency debasement.
Wood subsequently increased his allocation to Bitcoin to a 10% weighting in 2021, a position he has now completely exited. He has reallocated this exposure, assigning a 5% allocation to gold and another 5% to gold-mining equities.
The strategist emphasized that any credible threat to Bitcoin's cryptographic underpinnings would fundamentally weaken its investment thesis. He views risks to the mining and transaction validation system as "potentially existential, as it undermines the concept of Bitcoin as a store of value and therefore as a digital alternative to gold."
The Challenge Quantum Computers Pose to Blockchain Technology
Traditional computers operate using bits that exist in either a zero or one state. In contrast, quantum computers utilize qubits, which can simultaneously exist as zero, one, or both states through a property known as superposition. This capability allows quantum systems to evaluate numerous possibilities concurrently, a significant advantage over the sequential problem-solving methods of current computers.
Furthermore, the computational power of quantum systems scales exponentially with the number of qubits. For instance, two qubits can represent four values simultaneously, three qubits can represent eight, and this capacity doubles with each additional qubit.
Another critical phenomenon impacting blockchain developers is entanglement, where qubits become linked, allowing the measurement of one qubit to instantly reveal information about another. Combined with superposition, entanglement could empower quantum computers to solve complex mathematical problems and potentially compromise cryptographic systems.
Bitcoin relies on cryptography for securing wallets, authorizing transactions, and governing its mining process. While breaking this cryptography is currently considered practically impossible for conventional computers, quantum computers could alter this landscape by enabling attackers to derive private keys from publicly visible ones on the blockchain.
If a private key can be reverse-engineered, hackers could gain the ability to transfer funds without the wallet owner's authorization. David Duong, Coinbase's global head of investment research, estimated that approximately 32.7% of Bitcoin's circulating supply could be vulnerable to quantum attacks, as previously reported.
Duong noted on LinkedIn, "Bitcoin’s long-term security may be entering a new regime as quantum computing advances." His research indicates that around 6.51 million BTC, identified on block 900,000, might be exposed due to public keys that are already visible on the blockchain.
Nic Carter, a partner at Castle Island Ventures, expressed concern in a December post on X (formerly Twitter) that Bitcoin developers are "in denial" regarding the quantum computing risk. He stated, "Capital is concerned and looking for a solution. Devs are mainly in complete denial. Inability to even acknowledge quantum risk is already weighing on the price."