Bitcoin's Declining Volatility Signals its Maturing Market, Overtakes Major Tech Stocks
Summary:
Bitcoin's annual volatility has dropped below major tech stocks, indicating its evolution into a stable asset class. Bitcoin's current volatility patterns closely resemble early years of gold trading, indicating a maturing market. Periods of low volatility precede major Bitcoin price hikes, as investors are more likely to hold the digital currency in anticipation of price stabilization. The article suggests Bitcoin's maturing trend can be attributed in part to the approvals of various Bitcoin exchange-traded products. Major institutional involvement with Bitcoin expected in the coming months further aligns with Bitcoin's decreasing volatility.
On an annual basis, Bitcoin's (BTC) instability has dipped lower than major tech stocks such as Tesla, Meta, and Nvidia. This signifies its evolution into an increasingly reliable and stabilised asset class, overtaking numerous S&P 500 stocks in terms of stability. As of May 11, Bitcoin's 1-year realized volatility, an indication of the variation from the average return of a market, was approximately 44.88%. This is in contrast to the more than 50% annual realized volatility observed in prime stocks including Tesla, Meta, and Nvidia.
Bitcoin has demonstrated relatively less volatility in comparison to 33 out of roughly 500 firms in the S&P 500 index, according to a recent report by Fidelity Investment. The report highlights that "Using 90-day realized historical volatility figures, Bitcoin was in fact less volatile than 92 S&P 500 stocks in October 2023. A number of these firms are large and mega-cap stocks."
Similar to gold in its early trade years, Bitcoin has displayed a tendency towards lower volatility. High capital inflows are common in fresh asset classes and Bitcoin followed suit with an annualized volatility exceeding 200% in its initial period. Over time, a consistent reduction in volatility was observed, illustrating a market progressing to stabilization.
Bitcoin's current volatility patterns echo those of gold, which experienced a fluctuating price discovery phase in its early years, eventually settling down as the market matured. The precious metal's volatility reached a peak of over 80 during the early 1970s, nearly twice Bitcoin's in April 2024. However, gold's volatility reduced as it became a recognized asset class with a consistent price range. This pattern, mirrored by Bitcoin, hints at its evolution to a more balanced asset class as it penetrates further into the broader financial industry.
Moreover, comparing Bitcoin’s current annualized volatility of around 44% at its high price levels above $60,000 with around 80% three years prior at the same level, suggests Bitcoin has matured. Fidelity researcher Zack Wainwright suggests "Bitcoin is maturing, further hastened by the monumental approvals of several spot Bitcoin exchange-traded products in the U.S.,"
It's interesting to note that periods of lower annualized Bitcoin realized volatility precede major price hikes. Typically, when the price stabilizes, the sentiment to hold among both existing and new Bitcoin investors surges.
Blackrock's Head of Digital Assets, Robert Mitchnick, anticipates seeing major entities such as sovereign wealth funds, pension funds, and endowments engaging with spot Bitcoin ETFs in the coming months. Such Institutional investors usually have strict risk management protocols, so low volatility equates to more consistent and stable returns, aligning perfectly with their investment strategies.
According to independent market analyst Scott Melker, "The massive institutional flood of money that will drive bitcoin to all-time highs." Melker projects the BTC price to fluctuate between $100,000-150,000 due to anticipated ETF inflows. However, this article offers no investment advice or recommendations, and every investment and trading move involves risk. Therefore, readers should conduct their own research before making a decision.
Published At
5/11/2024 6:15:00 PM
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