‘Getting closer to gold’ – Will Bitcoin’s volatility shift catch Wall Street’s attention?

Bitcoin’s volatility or price swings have eased and it is now closing in on gold.

In the past, most criticism from investment advisors against $BTC as a hedge or an alternative to gold has been that it’s too volatile to be included in clients’ portfolios.

The tightening gap in volatility, according to Bloomberg ETF analyst Eric Balchunas, could be a “good sign.”

Bitcoin’s volatility and correlation is getting closer and closer to gold’s, which is underreported and perhaps one positive from this rough patch.

The 60-day volatility index has dropped from over 60 to around 35 for BlackRock’s iShares Bitcoin Trust (IBIT). Similarly, the gold ETF’s volatility dipped from 43 to around 25.

Citing insights from high-level ETF leaders, Balchunas added,

The big boy money out there (institutions, advisors) is not interested in tech stock returns from $BTC (they can get that in QQQ et al), they want gold-like returns, a true alternative asset because diversification is only free lunch.

According to him, the “true alternative asset” status can only be achieved if both assets have similar volatility. It remains to be seen if $BTC and gold will eventually close the volatility gap.

$BTC and gold ETF outflows deepen

The shrinking volatility among the two assets has also coincided with ETF outflows. Notably, overall $BTC ETF inflows topped $5B in early May. At the time of writing, the flows had dropped to nearly zero.

Gold has seen even more investor exits. For instance, gold ETFs recorded nearly $8 billion in outflows over the same period.

For JPMorgan analysts led by Nikolaos Panigirtzoglou, this was a cool-off of the “debasement trade” or demand for macro hedges as investors anticipate a likely U.S-Iran deal.

For the analysts, the debasement trade was at its peak during the early months of the West Asia crisis, which sparked inflation fears. As such, there is no need for macro hedges like gold or $BTC if the energy shocks are addressed by a potential U.S-Iran deal.

At the time of writing, $BTC was trading at $73.5K, down by 11% from its Q2 high of $82.8K. However, based on the historical $BTC/gold ratio, the bottom for $BTC has been hit or could likely be formed soon.

Notably, in 2022, $BTC bottomed out at the support near the $BTC/gold ratio level of 10.

Final Summary

• $BTC’s 60-day volatility has dropped sharply in May and nearly mirrors gold, which could soon make $BTC attractive to institutional investors
• JPMorgan analysts believe $BTC and gold ETF outflows mean the “debasement trade” may be cooling off on the back of a likely U.S-Iran deal.