Bitcoin (BTC-USD) rose 1.2% against the dollar on Tuesday morning in London following a report from JP Morgan (JPM) that suggested decreasing volatility would lead to greater institutional interest from investors.
JP Morgan's global markets strategy report said: "Assuming the current drift downwards in bitcoin volatility that appears to have started a month ago continues over the coming months, there would be positive implications both in terms of institutional adoption going forward and in terms of bitcoin’s fair value."
Analysts said that one major factor holding back institutional adoption of bitcoin and other cryptocurrencies is their volatility.
"The 3-month realised volatility for bitcoin peaked at 91% on Feb 23rd and has subsided to 86% since then," they said. "The 6-month realised volatility appears to be stabilising at around 73%."
The analysis follows moves by several large players that suggest cryptocurrency could be moving into the mainstream.
Payments company Visa (V) last week said it would allow the use of the cryptocurrency USD Coin to settle transactions on its payment network. USD Coin is a stablecoin, meaning its value is directly pegged to the US dollar. Bitcoin prices rose around 3% following the news.
First launched in 2018, USD Coin is managed by a consortium called Centre, founded by peer-to-peer payments company Circle and including cryptocurrency exchange Coinbase and bitcoin miner company Bitmain, which is an investor in Circle.
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Large firms including Mastercard (MA), Paypal (PYPL) and BlackRock (BLK) have also started using some digital coins in recent months. Currency watchers have speculated that this is part of the reason for bitcoins recent meteoric rise.
Elon Musk also said the cryptocurrency could now be used to buy Tesla (TSLA) electric vehicles, causing the coin price to spike last week.
Tesla had announced last month it had invested $1.5bn (£1bn) into bitcoin, the world's biggest cryptocurrency. The company said at the time it was hoping to accept payment in bitcoins in the near future. The announcement sent the price of bitcoin surging. The investment has since drawn scrutiny over its environmental impact.
Bitcoin has rallied more than 400% over the last six months thanks to growing support from institutional investors and major tech players like Tesla. Square (SQ), Jack Dorsey's payments company, has invested over $200m in the cryptocurrency.