Bitcoin Price May Be 'Fear Gauge' for Stock Market

31 May, 2018

Like all digital assets, the bitcoin price is notoriously volatile, but a surprising pattern has emerged from that volatility which may have wider ramifications for the traditional finance markets as a whole.

The CBOE Volatility Index, or VIX, is an established measure of volatility in the overall marketplace long-used by traders to give them an impression of investor fear in the market.

VIX analyst and President of Equity Armor Investments Brian Stutland — better known as the “The Fear Merchant” — believes that the bitcoin price is actually predicting the VIX one month in advance.

Speaking with CNBC, he said:

“There is huge correlation right now between VIX and bitcoin 30 days ago, 30 trading days ago, that is starting to measure out credit risk in the market. That’s what cryptocurrency is becoming. It’s becoming a way to sort of de-risk yourself from credit risk in the banking industry.”

Because cryptocurrencies are largely unregulated and allow investors to move their money off the balance sheets of banks and decrease credit risks, Stutland thinks they may be using bitcoin as a safe haven from the stock market despite the volatility of the former to avoid credit risks by putting their money in a more “off-grid” position.

“Bitcoin is a way to for investors to basically move their money off the balance sheets of banks and into their own wallets,” he added. “Essentially storing their money under their pillow in the form of virtual currency.”

While bitcoin’s reputation as a volatile cryptocurrency may give the impression that stock traders would shun it in favor of a more stable haven, SEC Chairman Jay Clayton pointed out that these days bitcoin is actually less volatile than the VIX, something that may come as a surprise to many.

“Just recently the volatility in bitcoin was not as great as the volatility we’ve seen in other securities, such as the VIX product,” said Clayton.

The benefits of avoiding credit risk plus the median stability provided by bitcoin compared to the stock market overall may have turned bitcoin into a leading indicator in the stock market.

If true, the implications are huge, meaning that the bitcoin price is actually a marker by which traders can predict stock market behavior. As credit risk increases, volatility in the marketplace does as well. Time will tell if the analysis is accurate, but if it is, the stock market is in for a bearish trend over the next few weeks.


Source link   Crypto currency: Bitcoin


Blockchain Life 2019

On April 23-24 world blockchain and cryptocurrency industry meet at a 3d global forum - Blockchain Life 2019 in Singapore. More than 5000 participants from 70 countries are going to visit the biggest...

Will Crypto Exchanges be Able to Survive

Only the fittest will survive, or so the saying goes. This mantra does not only apply to the animal kingdom, it works in the business world also and surviving is what a lot of...

Why Crypto currencies Will Rise Again

The cryptocurrency market has undergone a great deal of turmoil over the past year or so. The idea of a cryptographically secure decentralized ledger laid the foundation for the...

Crypto VC firm seeking $60M amid bitcoin rout

It goes without saying that 2018 bear season savaged the broader crypto industry. Investors lost faith, Wall Street seemingly pulled out and entire startups...


Could Bitcoin Initiate a New Bull Cycle by 2019?

In the last 24 hours, the cryptocurrency market recovered by $4 billion as the Bitcoin price rebounded above $3,700. Several major crypto assets in the likes of Ethereum...

2019 a Year of Accumulation For Bitcoin

In the past 24 hours, the crypto market has recovered from $120 to $123 billion as the Bitcoin priceavoided a further drop below the $3,600 mark. The bitcoin price...

Bitcoin Exposed, ETF Hopes Dimming?

In the short-term, sellers seem to be in charge and yesterday's drop below our immediate support at $3,700 may lead to reductions towards $3,400 may lead to...

Why cryptomarket remains bearish in 2019

With the exception of Ethereum, which seems to have started the year with all guns blazing ahead of the Constantinople fork, it won't surprise anyone that the market analysts SFOX rate...