Bitcoin's declining volatility could make it more attractive to institutional investors: JPMorgan

Bitcoin undervalued by $16,000, could see increase in institutional interest

Bitcoin is undervalued compared to gold, as its volatility has hit historic lows, said JPMorgan analysts led by Nikolaos Panigirtzoglou, in a note on Thursday.

The analysts noted that Bitcoin's six-month rolling volatility has dropped from nearly 60% at the start of the year to about 30%, the lowest level ever recorded. They suggest that Bitcoin's declining volatility could enable it to attract more institutional capital, with the potential to match that of gold.

"Expect that the allocations to Bitcoin by institutional investors could match those of competing asset classes such as gold if there is convergence in volatilities," the analysts wrote.

JPMorgan analysts noted that Bitcoin's market cap would need to increase by about 13%, placing its price near $126,000, to match gold's $5 trillion in private investment on a volatility-adjusted basis.

The bank highlighted that the gap between Bitcoin's price and its volatility-adjusted comparison to gold has shifted sharply over the past year, adding that the top crypto is undervalued by about $16,000. This indicates further upside as Bitcoin is still trading about 10% below its record high set earlier in August, the note states.

JPMorgan analysts also suggested that a major factor for Bitcoin's declining volatility has been the sharp increase in adoption by corporate treasuries over the past year. The move has reduced market activity and slowed down Bitcoin's volatility, as more institutions are piling the crypto in passive reserves.

Bitcoin is changing hands at $112,200 at the time of publication on Thursday, up 1% over the past 24 hours.

Bitcoin, altcoins, stablecoins FAQs

What is Bitcoin?

Bitcoin is the largest cryptocurrency by market capitalization, a virtual currency designed to serve as money. This form of payment cannot be controlled by any one person, group, or entity, which eliminates the need for third-party participation during financial transactions.

What are altcoins?

Altcoins are any cryptocurrency apart from Bitcoin, but some also regard Ethereum as a non-altcoin because it is from these two cryptocurrencies that forking happens. If this is true, then Litecoin is the first altcoin, forked from the Bitcoin protocol and, therefore, an “improved” version of it.

What are stablecoins?

Stablecoins are cryptocurrencies designed to have a stable price, with their value backed by a reserve of the asset it represents. To achieve this, the value of any one stablecoin is pegged to a commodity or financial instrument, such as the US Dollar (USD), with its supply regulated by an algorithm or demand. The main goal of stablecoins is to provide an on/off-ramp for investors willing to trade and invest in cryptocurrencies. Stablecoins also allow investors to store value since cryptocurrencies, in general, are subject to volatility.

What is Bitcoin Dominance?

Bitcoin dominance is the ratio of Bitcoin's market capitalization to the total market capitalization of all cryptocurrencies combined. It provides a clear picture of Bitcoin’s interest among investors. A high BTC dominance typically happens before and during a bull run, in which investors resort to investing in relatively stable and high market capitalization cryptocurrency like Bitcoin. A drop in BTC dominance usually means that investors are moving their capital and/or profits to altcoins in a quest for higher returns, which usually triggers an explosion of altcoin rallies.