JPMorgan sets $130K Bitcoin target as volatility drops while new regulations are brewing

• Bitcoin's three-month realized volatility has fallen to 86%, after its rise to above 90% in February.
• While volatility drops for the leading cryptocurrency, institutions could see this as a green light to enter the crypto space.
• Former SEC chairman Jay Clayton warns of new regulations that could come for Bitcoin. 

Institutions have been entering the cryptocurrency space, as Goldman Sachs and Morgan Stanley are two of the latest large banks to join in providing Bitcoin-related products and services to their clients. Researchers from JPMorgan Chase & Co. believe that other institutional investors will follow as Bitcoin’s volatility levels have declined.

Bitcoin funds inflow at the expense of gold

JPMorgan strategists, including Nikolaos Panigirtzoglou, noted a three-month realized volatility for Bitcoin has fallen to 86%, after its rise to above 90% in February. The six-month realized volatility has declined to roughly 73%. 

As Bitcoin’s volatility levels decrease, institutions could find the leading cryptocurrency more appealing. The strategists explained:

These tentative signs of Bitcoin volatility normalization are encouraging. In our opinion, a potential normalization of Bitcoin volatility from here would likely help to reinvigorate the institutional interest going forward.

Bitcoin’s volatility has long been a primary concern for institutional investors, as the higher volatility an asset has, the more risks are associated with it. 

The pioneer digital currency’s correlation structure relative to other traditional assets could also boost its popularity. As JPMorgan strategists explained, Bitcoin is a more attractive asset from a diversification point of view. 

The world’s largest cryptocurrency has been less correlated with traditional assets such as stocks and gold, which bolsters arguments that the new asset class could offer portfolio diversification benefits. 

In the past two quarters, as JPMorgan strategists suggested that $7 billion of inflows into Bitcoin funds have come at the expense of gold, which has seen the $20 billion of outflows from exchange-traded funds that track the precious metal.

If Bitcoin were to match the total private sector investment in gold, the leading digital currency would reach the price of $130,000. 

Bitcoin could be more regulated in the future

While institutions are just starting to offer Bitcoin and crypto-related products, the new asset class could be more regulated in the future.

Former US Securities & Exchange Commission (SEC) chairman Jay Clayton expects regulation for cryptocurrencies to come in the future, both directly and indirectly. Clayton, currently an adviser for One River Asset Management on cryptocurrencies, believes that the regulatory environment around the new asset class would eventually evolve. 

Although Clayton clarified that Bitcoin had not been clarified as a security for a long time, its status does not earn protection from new regulations, which he hinted — could be coming soon. 

The former SEC chairman’s remarks on Bitcoin also shed light on the SEC v. Ripple case, as the regulator filed its $1.3 billion lawsuit against the blockchain company and its executives, Brad Garlinghouse and Chris Larsen, for allegedly selling XRP illegally since 2013. 

In the case, the SEC argued that XRP tokens have characteristics of securities and that the company failed to register them as such. Since both Bitcoin and Ethereum were not considered as securities by the SEC, Ripple relied on this stance for one of its main lines of defense. 

---