With bitcoin touching all-time highs again, investors are confident that the latest bull run will be more sustainable than in previous cycles, given subdued volatility as the crypto industry matures with increased institutional adoption.
Bitcoin (BTCUSD) hit a record high at $94,963 on Tuesday, according to Dow Jones Market Data, marking a more than 480% increase from its cycle low at below $16,000 in November 2022, after crypto exchange FTX collapsed.
"The deleveraging events of 2021 and 2022 have flushed out a lot of bad actors, and the people who have stayed really, really want to be here and are motivated to bring the change that we think public blockchains can provide," Frank Downing, director of research at Ark Invest's next-generation internet team, said in a phone interview.
One key difference in bitcoin's latest bull run is the increased participation of institutions, as regulators earlier this year greenlighted exchange-traded funds that invest directly in bitcoin and ether.
The increase of institutional participation has a stabilizing effect on bitcoin's price, according to Bobby Zagotta, chief executive of Bitstamp US. Markets dominated by retail traders tend to move more dramatically with news events or a change in investors' sentiment, but when more institutions are involved, the growth of an asset price tends to be more sustainable, Zagotta said in a call.
"The positions that institutions take are usually more research-based and may have a slightly longer time frame of reference," he said.
Launched in 2009, bitcoin has seen its volatility lessen significantly over the years, though it remains elevated compared to many traditional assets. In 2021 and before, bitcoin's 30-day annualized volatility often exceeded 100%, topping 150% at times, according to data from crypto research and news site The Block. However, the number has stayed mostly below 80% so far this year.
Bitcoin's volatility is likely to continue to decline, as options on bitcoin ETFs start to arrive in the market, according to Luuk Strijers, chief executive at crypto derivatives exchange Deribit.
Nasdaq started offering options on BlackRock's iShares Bitcoin Trust IBIT for the first time on Tuesday. The launch of options on spot bitcoin ETFs would enable investors to execute different types of strategies to hedge their risks, such as selling covered call options, which would further reduce the volatility of bitcoin, Strijers said in a call.
Call options give the holder the right, but not the obligation, to buy the underlying asset at a certain price by a set time. Selling covered calls means that an investor sells options on an asset that they already own. Through such a strategy, investors could moderate their downside risks while the potential upside will also be limited.
-Frances Yue
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