• JPMorgan’s research note last week focused on the decline in bitcoin’s price volatility and the increased attractiveness as an institutional asset
  • Analysts and fund managers told Blockworks that extreme volatility is on the decline, but will never be truly eliminated from bitcoin

A recent note from JPMorgan Chase said that the declining volatility of bitcoin is making it a more attractive alternative asset for institutional investors seeking to diversify their portfolios. 

“In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward,” JPMorgan wrote last week. “Considering how big the financial investment into gold is, any such crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term… Mechanically, the Bitcoin price would have to rise [to] $130,000 to match the total private sector investment in gold.”

Similar sentiment was shared by Bloomberg Intelligence analyst Mike McGlone in a note published Tuesday morning. 

A bullish bitcoin underpinning

“Even with speculative excess in the broader crypto market, we believe Bitcoin is less prone to a sustained trip up. The imminent launch of Bitcoin-oriented U.S. exchange-traded funds is another bullish underpinning,” McGlone wrote. “Adoption of the benchmark crypto as a global reserve asset has crossed the mainstream threshold, as we see it, and the market tide is rising.”

Steven McClurg, Chief Investment Officer of Valkyrie Investments, told Blockworks that he believes as bitcoin is put on the balance sheet of many large institutions, such as sovereign wealth funds, insurance companies like MassMutual, and banks such as Morgan Stanley, the law of large numbers simply pushes down volatility. 

“I believe the true value is as an emerging safe-haven asset as the value of bitcoin tends to go up in line with expected US dollar-based inflation,” he said. 

McClurg noted that there are emerging trends of various correlations between bitcoin and other assets over the last few years, including negative correlations.

“Gold buyers and bitcoin buyers were more synonymous in 2017 and before,” he continued. “We have noticed bond buyers unwilling to make further allocations to low-yielding fixed income, in favor of bitcoin for total return.”

The nature of the asset class

Bill Noble, Chief Technical Analyst at Token Metrics, agrees that bitcoin’s volatility is on the decline — and that’s thanks to whales like Michael Saylor — but also said that he wouldn’t rule out a massive rally or correction before the year is done. It’s just the nature of the asset class. 

“Bitcoin is still a crypto asset. It can move 40% in a clip. Bitcoin can probably rally to $160,000 by either Memorial Day or Labor Day. However, if September turns out to be ‘Wrecktember’ for risk assets, commentary written today about reduced volatility in bitcoin will seem like a very distant memory,” he said.

“At the end of the day, bitcoin is crypto, and crypto can move the way commodities moved in the late 1970’s and 1980’s. As with the movie Jaws, while it can seem safe to swim, you can’t have the mindset that there’s no such thing as sharks,” he concluded. 

  • Blockworks
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    Sam Reynolds is a reporter for Blockworks, covering how regulations impact the institutional crypto market in Asia and beyond.