Bitcoin (BTC-USD) has experienced a notable reduction in its volatility this year, a trend attributed to the increasing number of corporations investing heavily in the cryptocurrency. This observation comes from JPMorgan strategists, who noted that the rolling volatility of Bitcoin over the past three and six months has reached unprecedented low levels, even as the digital currency has hit record highs three times between May and August.
While Bitcoin fluctuated to about $108,000 last Friday afternoon before climbing upwards to surpass $110,000 by Tuesday, it has enjoyed an increase of over 18% year-to-date. According to Nikolaos Panigirtzoglou, a global market strategist at JPMorgan, corporate treasuries now control over 6% of Bitcoin’s total supply, which he describes as a form of “private sector quantitative easing” for cryptocurrency markets. This influx of corporate investment, he argues, has contributed significantly to the decreased volatility seen in recent times.
Historically, Bitcoin has been known for its dramatic price swings, often far exceeding those of traditional assets like bonds, gold, and other equities. Despite its continued reputation for volatility, the narrowing range of its price fluctuations can be linked to the launch of various Bitcoin-related financial products, including futures contracts and exchange-traded funds (ETFs), which have broadened the investor base in the crypto market.
The current surge in corporate interest in Bitcoin aligns with a trend initiated by Michael Saylor, the founder of MicroStrategy, who has become an outspoken advocate for Bitcoin adoption among corporations. Since MicroStrategy began accumulating Bitcoin in 2020, it has emerged as a significant player in the cryptocurrency ecosystem. Saylor’s strategy has inspired numerous other companies, including notable entities like Trump Media & Technology Group and video game retailer GameStop, among others, to acquire substantial quantities of Bitcoin since the beginning of the year.
Recent data from Bitcoin Treasuries indicates that public companies accounted for nearly two-thirds of the total Bitcoin purchases among substantial buyers, which also include exchange-traded products and governments. This phenomenon could significantly alter how Bitcoin is perceived among various investor types. Panigirtzoglou noted that as Bitcoin’s volatility decreases, it might emerge as a more appealing investment alternative to gold, though volatility represents only one aspect of investment risk.
Throughout 2023, developments from both Washington and Wall Street have contributed positively to the crypto landscape. For instance, an executive order signed by the President in August seeks to eliminate regulatory barriers preventing the integration of alternative assets, including cryptocurrency, in 401(k) plans. Additionally, a bill enabling U.S. banks to create their own dollar-pegged stablecoins has been signed into law, with major banks like Citigroup and JPMorgan exploring this venture.
As companies bolster their crypto holdings, a trend has emerged whereby approximately 180 firms have adapted strategies inspired by MicroStrategy, with about a quarter trading below the value of the Bitcoin they hold as of late August. Moreover, the trend is not limited to Bitcoin, as corporate treasuries are also accumulating other cryptocurrencies, such as ether.
Recent moves indicated that even Trump’s namesake media group is pragmatically expanding its crypto interests by partnering with Crypto.com to establish a crypto treasury company aimed at managing the blockchain token Cronos (CRO-USD). This announcement has led to a notable increase in the token’s market capitalization.
While quantitative easing, often criticized as a mechanism resembling “money printing,” has various potential repercussions, including the risk of asset bubbles and inflation, the ongoing corporate interest in cryptocurrency may shape the future landscape of investment strategies and asset allocation.
