Bitcoin’s volatility has recently fallen below that of major tech stocks such as Tesla, Meta, and Nvidia, showcasing its evolution towards stability akin to more mature asset classes.
Bitcoin’s one-year realized volatility, a measure of the standard deviation of returns, stood at approximately 44.88% as of May 11. This figure contrasts with the higher volatilities observed in some of the S&P 500’s major stocks, often referred to as the “magnificent seven,” which exceed 50%.
A recent Fidelity Investment report highlights that Bitcoin exhibited lower volatility compared to 33 of the roughly 500 companies in the S&P 500 index. In October 2023, using 90-day realized historical volatility figures, Bitcoin was less volatile than 92 S&P 500 stocks, including several large-cap and mega-cap companies.
Historically, Bitcoin’s annualized volatility exceeded 200% in its early years, a common trait for new asset classes with significant capital inflows. Over time, as the market for Bitcoin matured, its volatility has shown a steady decline, mirroring the early volatility patterns of gold.
Gold experienced significant volatility fluctuations after it was decoupled from the U.S. dollar in 1971 and when private ownership was legalized in 1974, with its volatility peaking above 80 during the early 1970s. However, as gold established itself as a stable asset class, its volatility reduced substantially.
This stabilization pattern in Bitcoin suggests a similar trajectory towards becoming a more established asset class, particularly as it gains integration into the broader financial landscape. This integration has been accelerated by the approval of several spot Bitcoin exchange-traded products (ETPs) in the U.S.
Fidelity’s researcher Zack Wainwright noted a significant reduction in Bitcoin’s volatility, nearly half of what it was in 2021 when the price was around the same level, indicating a maturation in the market’s view of Bitcoin.
This period of reduced volatility has historically preceded substantial price increases for Bitcoin. As of late, the stability in Bitcoin’s price has attracted significant interest, particularly from institutional investors who favor predictable and stable returns that align with their investment strategies.
As Bitcoin’s volatility continues to stabilize, and with increasing demand for spot Bitcoin ETFs in the United States—which had attracted $11.68 billion as of May 11—the digital asset is attracting attention from major institutional players including sovereign wealth funds, pension funds, and endowments.
Market analyst Scott Melker suggests that the influx of institutional money could potentially drive Bitcoin’s price towards the $100,000 to $150,000 range, influenced by the anticipated inflows into ETFs. This view aligns with the broader sentiment that Bitcoin is maturing into a more predictable and widely accepted investment asset.