Bitcoin (CRYPTO: BTC) has finally climbed back over the $30,000 mark -- a level it hasn't seen since April. The crypto is starting to see some important changes in key underlying metrics, and investors obviously like what they see.
Most notably, Bitcoin's volatility is way down. At the same time, Bitcoin's correlation with gold is increasing, while its correlation with tech stocks is decreasing. Both of these would seem to suggest that Bitcoin is becoming less risky. So is it time to buy Bitcoin? Let's take a closer look.
Volatility
Typically, when investors think about Bitcoin, they think about it as a short-term, speculative asset. But that's increasingly not the case. Bitcoin is actually seeing some of its lowest volatility since 2020. Bitcoin's 90-day annualized volatility is down 50% from its highs during the 2021 bull market rally. What that means in practical terms is that much of the risk of huge, intra-day zigs and zags is disappearing. As of mid-June, Bitcoin had not seen a daily move of more than 6% for more than 70 consecutive trading sessions.
There are a number of possible explanations for this. One, of course, is that more people are choosing to buy Bitcoin as a long-term investment, and are not interested in trading it on a daily basis. In fact, monthly trading volume in Bitcoin is way down. At the same time, Bitcoin is moving off cryptocurrency exchanges and into blockchain wallets. This is typically a signal that people are choosing to HODL (crypto slang for "hold") for the long term. Right now, the amount of Bitcoin traded on exchanges is at its lowest point since January 2018.
Correlations with other assets
In addition, the correlation between Bitcoin and gold is increasing, largely a result of recent economic turbulence. As a result of the bank failures at the beginning of the year, the constant anxiety over inflation and recession, and the pervasive feeling that something just isn't right with the U.S. economy, investors are starting to treat Bitcoin like gold once again. In short, they are viewing it as a safe haven store of value, just like physical gold.
Image source: Getty Images.
At the same time, the correlation between Bitcoin and the tech-heavy Nasdaq is at a 17-month low. In short, Bitcoin is no longer trading like a high-growth tech stock. This is actually big news. At the end of 2022, Goldman Sachs made the argument that since Bitcoin was trading like a high-growth tech stock, gold was a superior investment for portfolio diversification purposes. So if correlations are shifting here, Bitcoin could be regaining some of its allure from a portfolio diversification perspective.
Bitcoin dominance
Finally, there's the Bitcoin dominance metric, which compares Bitcoin's market cap to the total market cap of the crypto market. This metric is spiking again, and is now over 50%, meaning that Bitcoin's market cap is now more than one-half of the entire crypto market's market cap. This is its highest level in two years.
There are several ways to think about this. From my perspective, the higher this figure goes, the more buying Bitcoin becomes a useful proxy for buying the entire crypto market. If buying Bitcoin gives you significant exposure to the overall crypto market, why bother buying any of the hundreds of other cryptos? Just buy some Bitcoin and be done with it. That's especially the case now, given the recent Securities and Exchange Commission (SEC) crypto crackdown.
Are the trends sustainable?
Putting it all together, the changes in these three metrics suggest that Bitcoin could be becoming a more attractive investment for long-term, buy-and-hold investors. The big question, though, is whether these trends are sustainable. While volatility is down by 50% this year, for example, how long can we expect this trend to persist? It would be a terrible mistake to buy Bitcoin thinking it's a long-term buy-and-hold investment, only to realize that the "new" Bitcoin has gone back to being the "old" Bitcoin.
That's why I'm particularly encouraged that Wall Street firms show no signs of backing off Bitcoin, and are actually bringing new products to market that feature Bitcoin. In mid-June, for example, BlackRock, currently the largest asset manager in the world, applied for a new spot Bitcoin exchange-traded fund (ETF), which would be the first of its kind. Then, one week later, a consortium of top financial services firms formally launched EDX, a new cryptocurrency exchange for trading Bitcoin.
As a result, I'm more bullish than ever on the long-term trajectory of Bitcoin. Some of its future potential upside might be capped, but it could be coming with a lot less volatility. That's a trade-off that I'm willing to make.
