JP Morgan says that bitcoin’s volatility has decreased in recent weeks, making the cryptocurrency more appealing to institutional investors. The investment bank has also revised its bitcoin price target to $130,000.
JPMorgan said last week that bitcoin’s price volatility has been declining in recent weeks, noting that this has made the cryptocurrency more appealing to institutional investors seeking low-correlation assets to diversify their investment portfolios.
Bitcoin’s high volatility has been one of the biggest barriers to BTC adoption by institutions, JPMorgan explained, adding that it now sees signs that the cryptocurrency’s volatility is normalizing.
“The recent change in the correlation structure of bitcoin relative to traditional asset classes” will likely increase the institutional adoption of bitcoin, JPMorgan elaborated. Based on the current gold price of $1,700 per troy ounce, the bank says, “Mechanically, the bitcoin price would have to rise [to] $130,000, to match the total private sector investment in gold.” If bitcoin’s volatility continues to converge with gold’s volatility, the bank says its long-term price target would be $130K, adding:
Considering how big the financial investment into gold is, any such crowding out of gold as an ‘alternative’ currency implies big upside for bitcoin over the long term.
The investment bank previously predicted that the price of bitcoin would reach $146,000 in the long term, but lowered its estimate as the price of gold fell recently from a peak of $1,900 per troy ounce. “The decline in the gold price since then has mechanically reduced the estimated upside potential for bitcoin as a digital alternative to traditional gold, assuming an equalization with the portfolio weight of gold,” the bank explained.
JPMorgan’s bitcoin price target is based on the firm’s expectation that bitcoin’s volatility will converge with gold’s. However, this convergence will not happen in the near future, as the three-month realized volatility for bitcoin recently stood at 86%, versus just 16% for gold. The investment bank noted:
A convergence in volatilities between bitcoin and gold is unlikely to happen quickly and is likely a multi-year process. This implies that the above $130,000 theoretical bitcoin price target should be considered as a long-term target.