Barring an epic rally over the last two months of 2022, this will go down as a forgettable year for bitcoin price action, but there are some arguably encouraging signs emerging for beleaguered crypto investors.
While bitcoin and other digital assets have long been associated with volatility, recent data indicate bitcoin’s volatility is declining below levels sported by major equity benchmarks. That reduced turbulence could encourage some risk-tolerant investors to go bargain-hunting with exchange traded funds such as the Invesco Alerian Galaxy Crypto Economy ETF (SATO) and the Invesco Alerian Galaxy Blockchain Users and Decentralized Commerce ETF (BLKC).
Both ETFs have stakes in the Grayscale Bitcoin Trust BTC (GBTC), meaning bitcoin price action and volatility is meaningful to the funds’ outcomes. Good news: Bitcoin’s volatility now resides that of both the S&P 500 and Nasdaq-100 Index (NDX), according to Kaiko.
“The data provider said Friday that the cryptocurrency’s 20-day rolling volatility has now fallen below that of the stock indexes for the first time since 2020. On Monday, it had fallen enough just to match the Nasdaq’s volatility. That’s welcome news to many longtime crypto investors who hope that a mellowing of crypto’s notorious price swings could bring less fear to potential new investors,” reports Tanya Macheel for CNBC.
The research firm adds that bitcoin’s month and three-month volatility readings relative to the aforementioned equity gauges have been declining for about a month. That’s relevant for investors considering ETFs such as BLKC and SATO because that volatility is easing even as macroeconomic challenges linger. Issues such as rising interest rates, a strong dollar, and persistent inflation, among others, are among the factors plaguing digital currencies this year.
“Bitcoin volatility is at multi-year lows while equity volatility is only at its lowest level since July,” Clara Medalie, head of research at Kaiko, told CNBC. “Equity markets have certainly been volatile over the past few months due to high inflation, an appreciating dollar, rising interest rates, and the ongoing war and energy crisis. The data suggests that cryptocurrency markets are less reactive to volatile macro events than they were earlier on in the year, whereas equity markets have remained highly sensitive.”
Bitcoin has been hovering around $19,000 for several weeks, and the next test for the largest cryptocurrency looms in the form of the upcoming Federal Open Market Committee (FOMC) meeting. It’s likely the Federal Reserve again raises interest rates, but if the central bank gives some sign it will ease that policy in 2023, ETFs such as BLKC and SATO could rally next year.
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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.