Bitcoin a Stable Investment? Volatility Dips Below Nasdaq, S&P 500
Bitcoin a Stable Investment? Volatility Dips Below Nasdaq, S&P 500
Bitcoin a Stable Investment? Volatility Dips Below Nasdaq, S&P 500 Business Cryptocurrencies have generally become less reactive to the release of sensitive economic data The indices that track price fluctuations in the S&P 500 and Nasdaq are both rising this year One bright spot in bitcoin’s recent sideways trading is that the cryptocurrency is now in uncharted territory: Bitcoin’s volatility is relatively low compared to stock markets. For the first time since 2020, bitcoin’s volatility has fallen below that of both the Nasdaq and S&P 500 stock indices, according to data from Kaiko. Today, bitcoin volatility is down more than 40% from its most volatile point yet this year in February. On Tuesday, Cboe’s volatility index (ticker VIX), a measure of the price volatility of the S&P 500, hovered just below 30, which is the generally accepted figure for heightened uncertainty, risk and fear in the markets. The VIX is up nearly 13 basis points so far. The Nasdaq-100 Volatility Index (ticker VOLQ) has also been on the rise this year so far. It has seen an increase of over 90% so far. Bitcoin Realized Volatility (Year-Owned) | Source: Zerocap “In the first half of 2022, cryptocurrencies were very reactive to macro-market events, such as the release of inflation data, interest rate hikes and stock market volatility,” said Clara Medalie, head of research at Kaiko. Bitcoin’s correlation with Nasdaq and the S&P 500 shot to record highs in the spring as global financial markets entered a period of high volatility. Cryptocurrencies have generally become less reactive to the release of sensitive economic data, Medalie added, which could explain the overall decline in volatility relative to stock markets. Bitcoin’s correlation coefficient with the S&P 500 has fluctuated between 0.5 and 0.6 over the past three months, which is relatively high compared to historical data, but traders hope the digital asset will move away from stocks. “It is likely that ‘digital gold’ [bitcoin] can disconnect and trade independently like gold,” Dan Morehead, CEO and co-chief investment officer at Pantera Capital, wrote in a note Tuesday. “In the first rising interest rate environment in 42 years, there will be a desire to invest in things that don’t have to fall as the Fed unwinds its double errors.” The Federal Reserve’s rate decision next month could lead to renewed volatility for cryptos, but traders are generally optimistic about bitcoin for now. “We see value in bitcoin at these levels; either it becomes a hedge against geopolitical and macro uncertainty, or it reconnects as a high beta asset,” said Jon de Wet, co-founder and chief investment officer at digital asset firm Zerocap. Bitcoin tends to be inversely correlated with movements in the US Dollar Currency Index (DXY), which has been in a strong uptrend since March. While that long-term trend remains intact, the dollar’s momentum has waned recently as it pulled back to test an area of support between 110 and 111, which coincides with the 50-day moving average. DXY on a daily scale | Source: TradingViewith whom If the dollar turns downward, risky assets can profit. “One thing’s for sure, volatility tends to bounce back — and long-term volatility strategies are worth looking at,” he said. In other words, the prolonged period of contraction in volatility that crypto markets have experienced in recent months will likely give way to an expansion in volatility at some point. And like an ever-coiling spring, the longer the volatility stays dampened, the more powerful the move – up or down – is likely to be. Get the best crypto news and insights of the day delivered to your inbox every night. Subscribe to Blockworks’ free newsletter now. Casey Wagner Blockworks Senior reporter Casey Wagner is a New York-based corporate journalist covering regulation, law, digital asset investment firms, market structure, central banks and governments, and CBDCs. Before joining Blockworks, she covered markets at Bloomberg News. She graduated from the University of Virginia with a degree in Media Studies. Contact Casey by email at: [email protected] 0 Share
