Bitcoin Volatility Retraces After Reaching Year-High, and Institutions May Be Main Reason for It

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Arman Shirinyan

Bit­coin volatil­i­ty goes down after receiv­ing bil­lions from insti­tu­tion­al investors

High volatil­i­ty and con­stant price changes are two fac­tors that often attract investors into the cryp­tocur­ren­cy indus­try. But with the arrival of insti­tu­tion­al funds, Bit­coin is slow­ly becom­ing a less volatile and more sta­ble asset, accord­ing to Bloomberg.

Pre­vi­ous­ly, var­i­ous experts “warned” cryp­tocur­ren­cy traders about the matu­ri­ty of Bit­coin that will lead to a volatil­i­ty decrease. With the large insti­tu­tion­al inflows that the mar­ket faces, Bit­coin’s 260-day volatil­i­ty has dropped to 66, which is the low­est lev­el since May, back when Bit­coin reached val­ues below $40,000.

With the decrease in volatil­i­ty, the asset may also receive more recog­ni­tion among tra­di­tion­al traders and investors, which makes Bit­coin’s cor­re­la­tion with the stock mar­ket stronger.

Bitcoin Volatility Chart
Source: Bloomberg

Pre­vi­ous­ly, the short-term cor­rec­tion on the stock mar­ket was clear­ly reflect­ed in Bit­coin and oth­er cryp­tocur­ren­cies. With Bit­coin’s volatil­i­ty going down, we might see even more sim­i­lar­i­ties in the move­ments of the two dif­fer­ent markets.

The main source of insti­tu­tion­al funds still remains the ProShares Bit­coin ETF that has pre­vi­ous­ly attract­ed more than $1.47 bil­lion to the cryp­tocur­ren­cy mar­ket, in addi­tion to oth­er providers like Grayscale and 21Shares.

While the new­ly pre­sent­ed Bit­coin ETF is not the most opti­mal prod­uct for get­ting expo­sure to the cryp­tocur­ren­cy mar­ket due to its being based on Bit­coin futures rather than an actu­al asset, U.S. investors still have no oth­er choice but to use deriv­a­tives-backed products.

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