According to JPMorgan Chase & Co., the recent decrease in Bitcoin volatility is setting the way for a development that might inspire institutions to invest.
“These preliminary signs of Bitcoin volatility normalisation are encouraging,” wrote strategists like Nikolaos Panigirtzoglou in a note emailed Thursday. “A possible normalisation of Bitcoin volatility from here, in our view, will definitely help to reinvigorate institutional activity going forwards.”
The cryptocurrency’s three-month realised volatility has declined to 86 percent since rising beyond 90 percent in February, they wrote. The six-month measure seems to be levelling off at about 73%. According to the strategists, as uncertainty subsides, a greater number of institutions will become interested in the crypto room.
The coin’s volatility has held institutions away, which is a crucial concern for risk management — the greater the volatility of an asset, the more risk capital it absorbs, according to the strategists. Currently, none of the major US banks have direct access to Bitcoin and its counterparts.
Nonetheless, conventional Wall Street firms have become more involved in the coin, particularly after it doubled this year after a 300 percent rise in 2020.
Goldman Sachs Group Inc. said this week that it is committed to providing private wealth clients investment funds for Bitcoin and other crypto currencies. Morgan Stanley wants to provide affluent clients with access to three funds that would enable them to own cryptocurrencies, while Bank of New York Mellon Corp. is creating a marketplace for conventional and digital assets.
Some of the emphasis on Bitcoin in the last two quarters has come at the detriment of gold, according to JPMorgan strategists, noting $7 billion in Bitcoin investment inflows and $20 billion outflows from exchange-traded funds monitoring the precious metal.
Meanwhile, recent improvements in Bitcoin’s correlation framework compared to other, conventional assets, according to JPMorgan strategists, may provide an additional boost to potential institutional acceptance. In recent months, these correlations have changed 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.
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