Bitcoin Volatility at All-Time Low – Market Entry Becomes Easier
Bitcoin volatility continues to decline. High volatility was so far the main reason why institutional investors shy away from crypto investments. With decreasing volatility, investor confidence will go up.
Bitcoin has gained more than 34% in 2020 and continues its bull run. JP Morgan recently attested the leading crypto asset an extraordinary crisis resistance: Bitcoin has proven to be more resilient than gold, stocks, treasuries, and fiat currencies, according to JP Morgan.
Bloomberg’s commodity strategist Mike McGlone provided a positive outlook for Bitcoin as well in his latest report. He believes the asset will continue its growth trajectory and is increasingly developing into a digital gold equivalent.
Bitcoin volatility is declining
Institutional investors have already been eyeing at Bitcoin’s risk-return profile for quite some time. Rightly so, studies have repeatedly shown that even small Bitcoin allocations can significantly increase the portfolio return, while neither portfolio volatility nor the maximum drawdown increases significantly. This makes Bitcoin, and cryptocurrencies in general, an attractive asset class for institutional investors in a low-interest environment.
McGlone writes that Bitcoin is developing from a currently still highly speculative asset to a digital gold with more stable prices. Relative to equities and gold, Bitcoin volatility is at an all-time low today, while prices continue to rise – indicating that the risk-adjusted returns of the crypto asset class continue to improve.
He compares Bitcoin’s volatility to the Nasdaq, showing that Bitcoin’s 260-day volatility is only twice that of the Nasdaq. In comparison, in 2017, Bitcoin volatility was seven times that of the Nasdaq. Bitcoin’s volatility usually increases as prices rise. In the stock market, the trend is reversed.
Bitcoin volatility has also fallen to a historic low compared to gold. While gold’s 260-day volatility has increased sharply since 2019, Bitcoin volatility has decreased by 30%.
Bitcoin becomes more attractive as a risk-asset
Crypto-assets have been far superior to other asset classes in terms of their risk-adjusted returns over the past five years, measured by the Sharpe Ratio. Still, investors are shying away from crypto-investments, mainly because of the above-average volatility of the asset class.
Source: Woobull Charts
With decreasing volatility, crypto-assets are becoming more attractive, especially for institutional investors, as the assets become easier to manage. “Bitcoin is winning in the category that matters most: demand,” writes McGlone. “The simple rule that an asset with limited supply and strengthening demand will increase in price shapes our Bitcoin outlook.”
Bloomberg’s McGlone expects Bitcoin volatility to keep decreasing. He believes a price target of $13,000 is realistic in 2020.