A new risk for crypto markets unsettles investors

The once-distant threat of quantum computing is now prompting one of the most closely followed market strategists to step away from bitcoin. This highlights how concerns over the security of the leading cryptocurrency are increasingly entering mainstream portfolio thinking.

Christopher Wood, global head of equity strategy at Jefferies, has removed a 10% allocation to bitcoin from his model portfolio. The decision reflects concerns that advances in quantum technology could undermine the cryptocurrency’s long-term reliability. In the latest edition of his Greed & Fear newsletter, Wood notes that progress in this field weakens the case for bitcoin as a secure store of value, particularly for long-horizon investors such as pension funds.

According to Wood, concerns are growing within the bitcoin community that quantum computers could become a practical reality “within a few years, rather than a decade or more.”

The bitcoin network relies on cryptography to secure tokens and validate transactions. With today’s computers, breaking this cryptography is effectively impossible. Quantum computers, however, could change this by enabling the extraction of private keys from public keys, a critical component in authorizing transfers.

The process of creating bitcoin through mining is also based on cryptography. Any threat to this system is “potentially existential, as it undermines the concept of bitcoin as a store of value and as a digital alternative to gold,” Wood says.

The strategist was among the early institutional supporters of bitcoin. He added the asset to his portfolio in December 2020, amid massive pandemic-era stimulus and concerns over U.S. dollar debasement. In 2021, he increased the allocation to 10%. He has now shifted his focus toward assets with longer track records, replacing the bitcoin position with a 5% allocation to physical gold and a 5% allocation to gold mining equities.

The debate over whether quantum computing poses a genuine threat to bitcoin and other cryptocurrencies has intensified following the sharp decline in the token’s price in October last year. Some leading developers have dismissed these concerns.

Nick Carter, a partner at Castle Island Ventures, wrote on the social media platform X in December that bitcoin developers are “in denial” about the risks posed by quantum technologies, a view that has been rejected by prominent bitcoin advocates, including Adam Back of Blockstream.

Technical outlook Bitcoin: Weekly

• Upward move
• 65 and 200 SMA: Price is above the 200-period average and has bounced from the 65
• Price has rebounded from horizontal support
• DeMarker: Exiting oversold territory

Technical outlook Bitcoin: Daily

• Uptrend in place
• Fibonacci: Price has rebounded from the 38.2 Fibonacci level
• DeMarker: Price is in overbought territory
• 65 and 200 SMA: The 65-period average is below the 200

Technical outlook Bitcoin: 4H

• Downtrend in place, with horizontal support formed at $95,000
• Fibonacci: Price is finding support at the 38.2 Fibonacci level
• DeMarker: Price is in neutral territory
• 65 and 200 SMA: The 65-period average is above the 200