Jefferies withdraws from bitcoin, shifts to gold amid concerns of quantum computing

Jefferies' global equity strategist Christopher Wood, in the latest Greed & Fear report, announced plans to remove its entire 10% allocation to Bitcoin this week, citing long-term concerns about the rise of quantum computing, ANI reported.

The 10% bitcoin allocation will be reallocated evenly, with 5% invested in gold and the rest 5% to gold-mining stocks, the news portal noted citing the report released by Jefferies.

Is there a threat from quantum computing?

It also clarified that it does not believe the "quantum issue" will lead to a sharp drop in Bitcoin prices in the near term. However, from a long-term pension portfolio perspective, Bitcoin is now regarded as a less reliable store of value. As a result, the decision has been made to exit Bitcoin exposure.

“While GREED & fear does not believe that the quantum issue is about to hit the Bitcoin price dramatically in the near term, the store of value concept is clearly on less solid foundation from the standpoint of a long-term pension portfolio. For that reason, GREED & fear will remove the 10 per cent allocation to Bitcoin this week,” the report said.

However, it also recognised Bitcoin's impressive previous performance. Since the initial allocation on 17 December 2020, Bitcoin has increased by 325 per cent. In comparison, gold bullion has gained 145 per cent over the same period.

The renewed debate has been ignited by the rising attention in recent months towards the potential threat that quantum computing may pose to Bitcoin. There is growing concern that powerful quantum computers could emerge within a few years, rather than a decade or more as previously believed.

Notably, traditional computers process information sequentially, whereas quantum computers utilise qubits that can process many possibilities simultaneously, making them far more powerful for certain calculations, including complex cryptographic problems.

Bitcoin depends on cryptography for security. Although generating a public key from a private key is straightforward, reversing this process is practically impossible with current technology and would require trillions of years to do so.

However, with the arrival of quantum computers relevant to cryptography (CRQCs), this balance could collapse, potentially allowing private keys to be derived from public keys in hours or days.

Bitcoin mining

The report also explained Bitcoin mining, which is the process of creating new Bitcoins and verifying transactions on the network through computing power.

The total supply is limited, with the last Bitcoin expected to be mined in 2140. Any threat to this system is viewed as potentially existential, as it undermines Bitcoin's role as a digital alternative to gold.

Greed & Fear observed that discussions are already ongoing within the Bitcoin community regarding how to respond, including whether to "burn" quantum-vulnerable coins or risk them being stolen.

The report cites studies indicating that 20-50% of all Bitcoin in circulation, or approximately 4-10 million BTC, may be vulnerable, particularly at exchange and institutional addresses due to address re-use. Lost coins, estimated at 2-3 million BTC in 2017 and potentially 4-5 million today, further increase this risk. Additionally, address re-use exposes public keys, creating another significant vulnerability.

These concerns have ultimately led Greed & Fear to move away from Bitcoin and instead focus on gold and gold-mining stocks.