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Banks Banking on Bitcoin’s Lack of Volatility

  • Bitcoin volatility starting to come down even as volumes increase, suggesting slightly elevated levels of institutional participation
  • While most larger U.S. banks have avoided cryptocurrencies, others are caving to client pressure to provide the institutional grade services necessary to support cryptocurrency investments

Bitcoin has a bad reputation for being volatile and as such, unsuited for inclusion as an investment asset.

Until now.

According to JPMorgan Chase (+0.97%), the 3-month realized volatility for Bitcoin has fallen to 86% after rising above 90% in February, when it hit its all-time-high.

6-month volatility for Bitcoin also appears to be stabilizing around 73% and as volatility subsides, JPMorgan Chase suggests, a greater number of institutions could warm to the cryptocurrency space and potentially pave the wave for a Bitcoin ETF to be listed in the U.S.

One of the reasons cited by the U.S. Securities and Exchange Commission for rejecting a Bitcoin ETF thus far, is that the underlying asset is highly volatile and the higher the volatility of an asset, the higher the risk capital consumed by it, which is part of the reason why the biggest U.S. banks have thus far declined to provide direct access to cryptocurrencies.

But what has changed is that as more wealthy investors have delved in the cryptocurrency space, they’ve put pressure on the banks that serve them to come onboard as well.

Some, but not all, Wall Street banks are gradually warming up to the idea.

Goldman Sachs (+0.20%) said earlier this week it’s close to offering Bitcoin investment vehicles for cryptocurrencies to private wealth clients while Morgan Stanley (+0.72%) plans to give rich clients access to three funds that will enable ownership of cryptocurrency.

Bank of New York Mellon (+0.38%) is developing a platform for digital assets as well but none of the biggest banks like Citigroup (+0.54%), Wells Fargo (+1.46%) or Bank of America (+2.07%) are currently providing direct access to Bitcoin or other cryptocurrencies.

Swiss bank Julius Baer (+2.15%) has started offering trading and custodian services for major cryptocurrencies within Switzerland, while Swiss private bank Bordier & Cie has started trading via third party platforms.

In Singapore, DBS Group Holdings (+0.69%) recently started its own cryptocurrency exchange that allows qualified investors from its private bank to invest in major cryptocurrencies while providing custodian services for them.

But even as more institutional investors get involved in Bitcoin, volatility which is inherent in the cryptocurrency, will persist and remain much higher than that of other traditional asset classes.

As an uncontrained asset, untethered to any traditional legal, physical or commonly recognized rights, Bitcoin’s value will continue to remain in the eye of its behodlers (misspelling intentional).

But the surge in interest, beyond the curious, may be the thing that makes the difference.

America’s largest cryptocurrency exchange Coinbase is set to debut on the New York Stock Exchange this month and its reception will provide further evidence of the institutionalization of an otherwise decentralized nascent asset class.

What can Digital Assets do for you?

While markets are expected to continue to be volatile, Novum Alpha’s quantitative digital asset trading strategies have done well and proved resilient.

Using our proprietary deep learning and machine learning tools that actively filter out signal noise, our market agnostic approach provides one of the most sensible ways to participate in the nascent digital asset sector.

If this is something of interest to you, or if you’d like to know how digital assets can fundamentally improve your portfolio, please feel free to reach out to me by clicking here.



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Phuong Nguyen

Business Development of Novum Alpha, a leading quantitative cryptocurrency trading firm that specializes in Managed Account and DeFi products