Bitcoin’s volatility and price fluctuations have decreased and are now approaching gold.
In the past, most criticism from investment advisors of BTC as a hedge or alternative to gold has been that it is too volatile to be included in clients’ portfolios.
The narrowing gap in volatility could be a “good sign,” according to Bloomberg ETF analyst Eric Balchunas.
Bitcoin’s volatility and correlation are getting closer to that of gold, which is underreported and perhaps a positive during this difficult period.
The 60-day volatility index has fallen from over 60 to around 35 for BlackRock’s iShares Bitcoin Trust (IBIT). Similarly, the gold ETF’s volatility dropped from 43 to around 25.
Citing insights from high-level ETF leaders, Balchunas added:
The big boy money (institutions, advisors) isn’t interested in BTC tech stock returns (that’s what they can get in QQQ et al.), they want gold-like returns, a real alternative asset because diversification is just a free lunch.
According to him, the status of ‘true alternative assets’ can only be achieved if both assets have comparable volatility. It remains to be seen whether BTC and gold will ultimately close the volatility gap.
BTC and gold ETF outflows are increasing
The declining volatility between the two assets also coincided with ETF outflows. It is striking that the total inflow of BTC ETFs exceeded the $5 billion mark in early May. At the time of writing, flows had dropped to almost zero.
Gold has seen even more investors leave. Gold ETFs, for example, recorded outflows of nearly $8 billion during the same period.
For JPMorgan analysts led by Nikolaos Panigirtzoglou, this was a cooling of the “debasement trade” or demand for macro hedges as investors anticipate a likely US-Iran deal.
According to the analysts, the downgrade trade was at its peak during the early months of the West Asian crisis, sparking inflation fears. As such, there is no need for macro hedges like gold or BTC if energy shocks are addressed by a potential US-Iran deal.
At the time of writing, BTC was trading at $73.5K, down 11% from the second quarter high of $82.8K. However, based on the historical BTC/gold ratio, the bottom for BTC has been reached or could likely be formed soon.
Notably, in 2022, BTC bottomed out at a level of 10 for the BTC/gold ratio.
Final summary
- BTC’s 60-day volatility fell sharply in May to almost mirror gold, which could soon make BTC attractive to institutional investors
- JPMorgan analysts believe the outflow of BTC and gold ETFs means the “depreciating trade” may be cooling off due to a likely US-Iran deal.