Jefferies Strategist Removes Bitcoin Allocation Due to Quantum Computing Risk

Jefferies has removed a 10% Bitcoin allocation from its model portfolio, citing concerns over the threat of quantum computing to Bitcoin's cryptographic security. Christopher Wood, the firm's global head of equity strategy, cited advancements in quantum computing as a potential long-term risk to Bitcoin's role as a digital store of value. The decision reflects a broader reevaluation of digital assets in the context of emerging technologies.

The firm previously added Bitcoin to its portfolio in December 2020, betting on its appeal as a form of 'digital gold'. Over the four years, Bitcoin delivered a 325% return, before being fully liquidated and reallocated to gold-related assets. Jefferies now views gold as a safer, more proven store of value in the face of long-term technological uncertainty.

The proceeds from the Bitcoin sale were split evenly between physical gold bullion and gold-mining stocks. The reallocation was described as a strategic shift toward assets that are more resilient during economic stress and technological disruptions. Jefferies emphasized that while the quantum computing threat is not immediate, it is a structural risk that could undermine Bitcoin’s value proposition over time.

Why Did Jefferies Remove Bitcoin from Its Portfolio?

Jefferies noted that quantum computing could undermine Bitcoin’s security model by leveraging quantum algorithms to derive private keys from public keys. This is based on the theoretical risk that a sufficiently powerful quantum computer could crack Bitcoin’s cryptographic algorithms in hours or days, rather than trillions of years.

The firm estimates that between 20% and 50% of all Bitcoin in circulation—approximately 4 million to 10 million BTC—could be vulnerable if quantum computing reaches the required scale. While Jefferies does not expect an immediate threat, it views the risk as a long-term challenge to Bitcoin's role as a store of value.

The reallocation to gold is seen as a hedge against both technological uncertainty and tightening monetary conditions. Gold, historically, has maintained its value during economic stress and remains a preferred asset for institutional investors.

How Did Quantum Computing Developments Influence the Market?

Rosenblatt Securities initiated coverage on quantum computing stocks Rigetti Computing (RGTI) and Quantum Computing (QUBT) with Buy ratings. The move signaled growing institutional interest in quantum computing as both an investment and a potential disruptor of traditional digital security models.

Quantum Computing (QUBT) received a $22 price target from analysts, who highlighted the company's quantum assets across photonics, compute, and sensing. The company's recent acquisition of Luminar's LSIs and its $1.6 billion cash position were seen as positive factors by analysts.

Rigetti Computing (RGTI) was also given a Buy rating with a $40 price target. Analysts praised the company's modular approach to qubit scaling and internal fabrication capabilities. However, challenges with two-qubit gate error rates remain a concern, and the company must improve to remain competitive with peers like IBM and D-Wave.

The growing institutional focus on quantum computing is likely to accelerate R&D in the space, with potential applications in finance, healthcare, and cybersecurity. Market analysts are closely watching whether quantum computing can achieve a 'quantum advantage' over classical computing in the next few years.

What Are Analysts Watching Next?

The global quantum computing market is expected to grow at a CAGR of 14.5% through 2030, driven by applications in drug discovery and cybersecurity. This expansion could see quantum computing become a multi-trillion-dollar industry within a decade.

Analysts are also monitoring the adoption of post-quantum cryptography (PQC) in the financial sector. As quantum computing threatens traditional cryptographic standards like RSA and ECC, the urgency to implement quantum-resistant encryption is increasing.

Investors are advised to track both the development of quantum hardware and the progress in cryptographic defenses. The balance between innovation and risk will shape how institutions allocate capital in the digital asset space.

In the short term, the Bitcoin move by Jefferies is a signal but not a trend. However, if more institutions follow suit, it could shift the broader narrative around Bitcoin's role as a long-term store of value.