Bitcoin stability is the main issue why major banks remain hesitant to buy into cryptocurrency. However, the recent pullback in Bitcoin’s volatility is turning heads. This might signal a trend that institutions are now getting ready to dive in.
Bitcoin Stability Means Reduced Volatility
According to Nikolaos Panigirtzoglou, Managing Director at JPMorgan Chase & Co, Bitcoin’s reduced volatility is getting harder to ignore. “These tentative signs of Bitcoin volatility normalization are encouraging. In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward,” he wrote.
The three-month realized volatility for the cryptocurrency fell to 86%. In contrast, the volatility registered above 90% in February, the analysts observed. The six-month measure appears to stabilize at 73%. With lesser volatility, more and more firms will take crypto more seriously.
Potential Is Too Hard To Ignore
Previously, the coins’ volatility turned off large institutions. Standard risk management practices dictate that the higher an asset’s volatility, the higher the risk capital consumed. This is a key consideration for institutions before deciding to trade for cryptocurrency. Consequently, the biggest US banks shied away from trading bitcoin and other cryptos. That is, until this year when it posted a 300% jump and doubled its value in a month.
Now, traditional Wall Street firms are approaching Bitcoin with greater interest. Goldman Sachs announced that it’s close to offering investment vehicles for Bitcoin and other digital assets to private wealth clients. Meanwhile, Morgan Stanley divulged plans to give rich clients access to three funds that feature the ownership of crypto. Also, Bank of New York Mellon Corp said they’re developing a platform for traditional and digital assets.
At The Expense of Gold
With the newfound interest in bitcoin, the crypto seems to steal some of the lusters of gold. The past two quarters showed declining interest in holding gold among investors. JPMorgan’s strategists reported $7 billion of inflows into Bitcoin funds. At the same time, outflows valued at around $20 billion came from exchange-traded funds investing in the precious metal.
With Bitcoin posting its best first-quarter performance in eight years, it’s registered better growth compared to gold even counting inflationary fears. Currently trading in the $58,000 mark, the cryptocurrency is almost double its value since January 1, 2021. This year marked the biggest gain since 2013.
That year, bitcoin prices exploded by 600% in the January-to-March period, according to CoinDesk 20 data. Meanwhile, an ounce of gold currently sells for $1,685. In contrast to Bitcoin, gold lost 11% of its value during the first quarter. This is the metal’s worst start to the year since 1982.
Additional Boosts To Bitcoin Adoption
Meanwhile, recent changes to Bitcoin’s correlation structure vs other traditional assets can further increase interest. Recently, these correlations shifted lower, “making Bitcoin a more attractive option for multi-asset portfolios for diversification point of view and less vulnerable to any further appreciation in the dollar,” they wrote.
Bloomberg reported that Bitcoin’s correlation with stocks and gold is declining while its value rises. This strengthens the argument that cryptocurrencies can offer portfolio diversification benefits. The 90-day correlation of the S&P 500 index and Bitcoin dropped to about 0.21 from a recent peak above 0.50 in October. This makes the comparable measure for bitcoin and gold to near the lowest levels in about a year. “In terms of Bitcoin, as well as other digital coins, versus other traditional risky asset classes, the diversification benefits remain intact,” said Benson Durham, head of quantitative global policy analytics at Cornerstone Macro LLC. Adding crypto to an all-stock portfolio can offset volatility.
Watch the Thinking Crypto video reporting that Goldman Sachs will start offering Bitcoin & Crypto to wealthy clients:
Are you looking into investing in cryptocurrency such as Bitcoin? If banks start trading bitcoin, will you invest as well? Let us know what you think about Bitcoin and cryptocurrency in general. Share your thoughts in the comments section.
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