Bitcoin More Stable Than Many S&P 500 Stocks
13 May, 2024 ● Coin news
Bitcoin's volatility over the past year has fallen below that of leading tech stocks like Tesla, Meta, and Nvidia, indicating its progression toward becoming a more mature and stable asset class.
As of May 11, Bitcoin's one-year realized volatility, which measures the standard deviation of returns from the mean return of a market, stood at around 44.88%.
In contrast, the annualized realized volatility of top stocks such as Tesla, Meta, and Nvidia exceeded 50%.
Additionally, Bitcoin has exhibited lower volatility compared to 33 of the approximately 500 companies in the S&P 500 index, according to Fidelity Investment's latest report.
Notably, "Bitcoin was actually less volatile than 92 of the S&P 500 stocks in October of 2023 when using the 90-day realized historical volatility figures. Some of these names are also large-cap and mega-cap stocks."
In its early years, Bitcoin's annualized volatility exceeded 200%, a typical trend for new asset classes with significant capital inflows.
These inflows constituted a smaller proportion of the total capital base, making new investments less likely to significantly affect market prices or the decisions of marginal buyers and sellers.
This trend is illustrated in Bitcoin's long-term volatility chart, which shows a gradual stabilization over time with a downward-sloping regression line.
Bitcoin's recent volatility patterns resemble gold's early trading years.
Like gold, Bitcoin has gone through a price discovery phase characterized by high volatility, which has gradually decreased as the market matures.
Gold prices surged with inflation after decoupling from the U.S. dollar in 1971 and the legalization of private ownership in 1974.
Consequently, gold's volatility peaked at over 80% in the early 1970s—nearly double that of Bitcoin in April 2024.
As gold established itself as an asset class with a more stable price range, its volatility decreased.
This similarity suggests that, like gold, Bitcoin is transitioning toward a more stable asset class as it integrates into the broader financial landscape.
One significant indicator is comparing Bitcoin’s current annualized volatility of around 44% at price highs above $60,000 to approximately 80% three years ago when the price was at a similar level.
"This may point to a growing belief that Bitcoin is maturing, further accelerated by the landmark approvals of several spot Bitcoin exchange-traded products in the U.S.," argues Fidelity researcher Zack Wainwright, adding, "Bitcoin was nearly half as volatile in 2024 at $60,000 compared to 2021.
When considering this, a thesis of growing acceptance due to potential maturation begins to emerge."
Interestingly, periods of lower annualized Bitcoin realized volatility have often preceded significant price increases.
In other words, accumulation sentiment among Bitcoin investors tends to rise when the price stabilizes.
Bitcoin's one-year volatility was around 43% in December 2023. Since then, its price has risen by approximately 75%, further boosted by the demand for spot Bitcoin ETFs in the United States.
As of May 11, these ETFs had attracted $11.68 billion cumulatively.
Robert Mitchnick, head of digital assets at BlackRock, the world's largest asset management company, notes that significant players like sovereign wealth funds, pension funds, and endowments are likely to engage with spot Bitcoin ETFs in the coming months.
Institutional investors typically have stringent risk management protocols. Lower volatility in an asset class translates to more predictable and stable returns, aligning better with their investment strategies.
“It’s very important to remember that this takes time; these companies are just starting to do their due diligence,” independent market analyst Scott Melker argues, adding, "The massive institutional flood of money will drive Bitcoin to all-time highs." Melker expects Bitcoin's price to rise to the $100,000-150,000 range due to anticipated ETF inflows.
Sources:
https://cointelegraph.com/news/bitcoin-volatile-tesla-nvidia-stocks-100k-price-prediction
https://www.fidelitydigitalassets.com/research-and-insights/closer-look-bitcoins-volatility
https://twitter.com/Ashcryptoreal/status/1786051361701761143
