According to JP Morgan, bitcoin’s volatility has decreased in recent weeks, making the cryptocurrency more attractive to institutional investors. The investment bank also revised its price target for bitcoin to $130,000.
Institutional adoption up, new bitcoin price forecast
JPMorgan said last week that bitcoin’s price volatility has decreased in recent weeks, noting that this has made cryptocurrencies more attractive to institutional investors looking for low-correlation assets to diversify their investment portfolios.
Bitcoin’s high volatility has been one of the main obstacles to its adoption by institutions, JPMorgan said, adding that there are signs that cryptocurrency volatility is normalizing.
The recent shift in bitcoin’s correlation structure relative to traditional asset classes is likely to increase institutional adoption of JPMorgan-developed bitcoin. Based on the current gold price of $1,700 per troy ounce, the bank says: Mechanically, the price of bitcoin would have to rise [to] $130,000 to match the private sector’s total investment in gold. If bitcoin’s volatility continues to approach that of gold, the bank would set its long-term price target at $130,000:
Given the importance of financial investments in gold, such a shift away from gold as an alternative currency implies significant upside potential for bitcoin in the long run.
The investment bank had previously predicted that the price of bitcoin would eventually reach $146,000, but has revised its forecast downward as the price of gold has recently fallen from a high of $1,900 per troy ounce. The fall in the gold price since then has mechanically reduced the estimated upside potential for bitcoin as a digital alternative to traditional gold, suggesting an alignment with the weight of gold in the portfolio, the bank said.
JPMorgan’s bitcoin price target is based on the company’s expectation that bitcoin’s volatility will equal that of gold. However, such a convergence is not about to happen, as the realized volatility over three months for bitcoin was recently 86%, while for gold it was only 16%. The investment bank noted:
Convergence in volatility between bitcoin and gold is unlikely to happen soon and will likely be a multi-year process. This means that the theoretical bitcoin price of $130,000 mentioned above should be considered a long-term goal.
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