Bitcoin's (BTC) volatility in the annual timeframe has dropped below that of top tech stocks, including Tesla, Meta, and Nvidia, signaling its growth toward becoming a more mature and stable asset class.
Bitcoin becomes more stable than many S&P 500 stocks
As of May 11, Bitcoin's 1-year realized volatility, which represents the standard deviation of returns from the mean return of a market, was at around 44.88%. In comparison, the annualized realized volatility of "magnificent seven" stocks such as Tesla, Meta, and Nvidia was over 50%.
Bitcoin's 1-year volatility vs. magnificent seven stocks. Source: Bloomberg
Moreover, Bitcoin has shown relatively lower volatility compared to 33 of the roughly 500 companies in the S&P 500 index, noted Fidelity Investment in its 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."
Bitcoin vs. S&P 500 companies 360-day volatility. Source: Bloomberg Bitcoin mirroring gold volatility patterns
Bitcoin's annualized volatility in its nascent years was over 200%, a trend typical among newer asset classes with higher capital inflows. This is because these inflows represented a smaller proportion of the total capital base.
Consequently, new investments are less likely to significantly influence market prices or the decisions of marginal buyers and sellers, as illustrated in Bitcoin's long-term volatility chart below, showing a gradual stabilization of volatility over time with a downward-sloping regression line.
Bitcoin realized volatility vs. market cap. Source: Glassnode
Bitcoin's recent volatility patterns closely resemble gold's in its early trading years. Like gold, Bitcoin has undergone a period of price discovery, marked initially by high volatility, which gradually subsides as the market matures.
Gold prices surged with inflation after its decoupling from the U.S. dollar in 1971 and the legalization of its private ownership in 1974. As a result, the precious metal's volatility reached over 80 during the early 1970s—almost twice that of Bitcoin in April 2024.
Gold price and historical volatility. Source: Bloomberg
However, as gold became an established asset class with a more stable price range, its volatility decreased. This similarity suggests that, like gold, Bitcoin is transitioning toward a more stabilized asset class as it becomes better integrated into the broader financial landscape.
Related: Bitcoin overtakes gold in investor portfolio allocation — JPMorgan
One major evidence emerges by comparing Bitcoin’s annualized volatility of around 44% at its current price highs above $60,000 with around 80% three years ago when the price was around the same level.
"What this may be pointing to is 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 when compared with 2021. When putting this all together, a thesis pointing toward a growing acceptance of Bitcoin due to potential maturation begins to emerge."
Major BTC price jump ahead?
Interestingly, the period of lower annualized Bitcoin realized volatility has preceded major price increases. In other words, accumulation sentiment among existing and new Bitcoin investors tends to rise when the price stabilizes.
Bitcoin annualized realized volatility vs. price. Source: Glassnode
Bitcoin's 1-year volatility was around 43% in December 2023. Since then, its price has risen by circa 75%, helped further by the demand for spot Bitcoin ETFs in the United States. As of May 11, these ETFs had attracted $11.68 billion cumulatively.
Spot Bitcoin ETF cumulative inflows. Source: Farside Investors
Robert Mitchnick, head of digital assets for BlackRock, the world's largest asset-management company, notes that the coming months will likely see significant players like sovereign wealth funds, pension funds, and endowments engaging with spot Bitcoin ETFs.
Institutional investors typically have stringent risk management protocols. Lower volatility in an asset class translates to more predictable and stable returns, which align better with their investment strategies.
Related: 39% of Canada’s institutional investors have exposure to crypto: KPMG
“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 that will drive bitcoin to all-time highs."
Melker expects the BTC price to rise toward $100,000-150,000 range due the anticipated ETF inflows.
This article does not contain investment advice or recommendations. Every investment and trading move involves risk, and readers should conduct their own research when making a decision.
