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Last week, JPMorgan said that bitcoin’s declining price volatility in recent weeks has made the cryptocurrency more appealing to institutional investors that seek low-correlation assets to diversify their investment portfolios.
JPMorgan explained that its high volatility used to be one of the biggest barriers to Bitcoin’s institutional adoption and added that there are clear signs that the cryptocurrency’s volatility is normalizing. The firm’s analysts believe BTC is set up for an upswing to $130,000.
Over the past two months, Bitcoin’s volatility has been decreasing. The 30-day realized volatility dropped by 46% to hit the lowest levels since December 2020 and the 60-day realized volatility dropped by 14.20% to 4.36% currently.
While a decreased volatility could implicate less profitability, institutional investors are attracted to such metrics.
Nikolaos Panigirtzoglo, Managing Director at JP Morgan believes that the decreased volatility acts as a pull-factor because investments in Bitcoin simply becomes less risky.
“In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward,” Panigirtzoglo said.
JPMorgan’s Bitcoin price target of $130,000 is based on their expectation that Bitcoin’s volatility will cross with gold’s.
The JPMorgan Managing Director said that these calmer waters would give Bitcoin a better chance of becoming a substitute for gold and its related financial products. Panigirtzoglo said that Bitcoin is on track to “match the total private sector’s investment in gold.” And when this happens the cryptocurrency could reach $130,000.
The Managing Director added:
“A convergence in volatilities between Bitcoin and gold is unlikely to happen quickly and is likely a multi-year process. This implies that the above $130,000 theoretical Bitcoin price target should be considered as a long-term target.”
Gold is trading in a downward trend since August 2020 when it peaked at above the $2,000 level.
“The decline in the gold price since [the initial estimate] has mechanically reduced the estimated upside potential for Bitcoin as a digital alternative to traditional gold, assuming an equalization with the portfolio weight of gold… Mechanically, the Bitcoin price would have to rise [to] $130,000 to match the total private sector investment in gold,” Panigirtzoglo said.