Foreign media reports indicate that Bitcoin's price volatility has recently contracted significantly, gradually approaching that of gold. This change is seen as a positive sign by some market participants, as institutional advisors have long questioned whether Bitcoin's excessive volatility made it unsuitable for inclusion in client portfolios.
Volatility gap narrows
Bloomberg ETF analyst Eric Balchunas stated that Bitcoin's volatility and correlation are increasingly approaching those of gold, a point that has not received sufficient attention in the market. He cited ETF industry insiders who believe that large institutions and investment advisors do not need Bitcoin to offer the high-return volatility of tech stocks, but rather value its potential to become a true alternative asset, like gold.
Following this logic, if Bitcoin is to be accepted by more traditional funds, in addition to its return characteristics, its volatility level also needs to be closer to that of gold. The article argues that the continued narrowing of the volatility gap may help Wall Street reassess Bitcoin's place in diversified asset allocation.
ETF fund flows cooled down simultaneously.
This change occurred at the same time that inflows into both Bitcoin and gold ETFs slowed. The article noted that in early May, Bitcoin ETFs saw net inflows exceeding $5 billion, but as of press time, new inflows had nearly stalled.
The outflow of funds from gold ETFs was even more pronounced. During the same period, gold ETFs recorded a net outflow of nearly $8 billion, indicating that investor demand for traditional safe-haven assets is also declining.
- Bitcoin ETFs saw net inflows exceeding $5 billion in early May.
- As of press time, the related cash flow has almost reached zero.
- Gold ETFs saw net outflows of nearly $8 billion during the same period.
JPMorgan Chase discusses declining hedging demand
A team led by JPMorgan analyst Nikolaos Panigirtzoglou believes this reflects a cooling of the so-called "currency devaluation trade." Previously, investors increased their allocations to macro hedges such as gold and Bitcoin due to concerns about inflation and energy shocks, but this demand has weakened as markets anticipate a possible agreement between the US and Iran.
The article states that in the early stages of tensions in the Middle East, related transactions surged, fueling market concerns about inflation. If a potential agreement eases the energy shock, investor demand for hedging instruments like gold and Bitcoin may continue to decline.
As of press time, Bitcoin was trading at $73,500, down approximately 11% from its second-quarter high of $82,800. However, the article also noted that historically, the Bitcoin/gold ratio suggests the market may be nearing a bottom or forming a bottoming pattern. In 2022, this ratio around 10 corresponded to a Bitcoin bottom.
