Key Points
- Bitcoin’s (BTC) annual volatility has dropped below that of top tech stocks, showing its maturity and stability as an asset class.
- The cryptocurrency’s volatility patterns are mirroring those of gold in its early trading years, suggesting a transition towards a more stabilized asset class.
Bitcoin’s annual volatility has shown a decrease, falling below that of top tech stocks like Tesla, Meta, and Nvidia. This indicates that Bitcoin is maturing and becoming a more stable asset class.
Bitcoin’s Stability Compared to S&P 500 Stocks
On May 11, Bitcoin’s 1-year realized volatility stood at around 44.88%. This is lower than the annualized realized volatility of “magnificent seven” stocks such as Tesla, Meta, and Nvidia, which was above 50%.
Furthermore, Bitcoin’s volatility is lower than 33 of the approximately 500 companies in the S&P 500 index, as reported by Fidelity Investment in its recent report. The report highlighted that Bitcoin was less volatile than 92 of the S&P 500 stocks in October of 2023 when using the 90-day realized historical volatility figures.
Bitcoin’s Volatility Patterns Resemble Gold’s
In its early years, Bitcoin’s annualized volatility was over 200%, a common trend among new asset classes with higher capital inflows. However, as Bitcoin’s market matures, its volatility has shown a gradual stabilization.
This pattern is similar to that of gold in its early trading years. Gold experienced high volatility during its price discovery period, which gradually subsided as the market matured. The similarity suggests that Bitcoin, like gold, is transitioning towards a more stabilized asset class as it becomes better integrated into the broader financial landscape.
The comparison of Bitcoin’s annualized volatility of around 44% at its current price highs above $60,000 with around 80% three years ago when the price was around the same level further supports this notion. This could point to a growing belief that Bitcoin is maturing, a belief that is further accelerated by the landmark approvals of several spot Bitcoin exchange-traded products in the U.S.
Potential Major Price Jump for Bitcoin
Interestingly, periods of lower annualized Bitcoin realized volatility have been followed by significant price increases. This suggests that the sentiment for accumulation among existing and new Bitcoin investors tends to rise when the price stabilizes.
Bitcoin’s 1-year volatility was around 43% in December 2023. Since then, its price has risen by approximately 75%, further aided by the demand for spot Bitcoin ETFs in the United States. As of May 11, these ETFs had attracted $11.68 billion cumulatively.
Institutional investors, such as sovereign wealth funds, pension funds, and endowments, are expected to engage with spot Bitcoin ETFs in the coming months. Lower volatility in an asset class translates to more predictable and stable returns, which align better with their investment strategies.
This process will take time as these companies are just starting to do their due diligence. However, the anticipated ETF inflows could potentially drive the Bitcoin price to the $100,000-150,000 range.
