One of the most often cited knocks against bitcoin is that digital assets are volatile. While the largest cryptocurrency has had its bouts with turbulence, some investors may be surprised to learn bitcoin actually has some favorable volatility statistics.
Bitcoin proponents argue that it is the ultimate alternative asset, combining high potential returns with low correlations and intraday liquidity. Has that held up during the recent market volatility? Other critics believe bitcoin is an asset bubble destined to pop, but ARK sees a contender in the global money arena
“Historically, bitcoin has been discussed in the news and among investors as a nascent and volatile asset outside of the traditional stock and capital markets,” writes VanEck director of digital assets Gabor Gurbacs in a recent note. “Much of the volatility over the past few years can be attributed to sensitivity to small total market size, regulatory hurdles, and generally limited penetration in mainstream stock and capital markets. While bitcoin continues to be a volatile asset, it may surprise researchers and investors as to what other major assets have been more volatile than bitcoin.”
Year-to-date, 155 S&P 500 companies, or 31% of the index, have higher volatility than bitcoin, according to VanEck data.
Betting on Bitcoin
There are catalysts for increased bitcoin adoption. Millennials, the rise of China, demand for privacy, rising interest for alternative investments, and headwinds among traditional assets are significant factors that will continue to fuel demand for cryptocurrencies.
“In our long-term study of bitcoin, we had compared bitcoin correlations to traditional asset classes and now see another interesting recent trend with its volatility,” notes Gurbacs. “In our current volatility research, we compared the 90 day and year to date volatility—as measured by their daily standard deviation as of June 30, 2020—of bitcoin against the constituents of the S&P 500 Index. We found that bitcoin has exhibited lower volatility than 172 stocks of the S&P 500 in a 90 day period and 155 stocks YTD.”
In the past few years, a dozen regulated, insured custodians, have emerged, along with a variety of trading venues with material liquidity. Investors may now find that futures and the ability to hedge are in place. Offerings are being made available from traditional financial institutions like Fidelity, Susquehanna, and CME, with more coming online.
“While there are no U.S. bitcoin ETFs available today, we believe such products may show similar volatility characteristics—based on the comparison above—as many stocks in well-known indices and ETFs, such as the S&P 500 and related product,” according to Gurbacs.
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.