Brian Stutland, Managing Member at financial planning and portfolio management firm Equity Armor Investments, has recently stated that Bitcoin is like the new VIX, referring to CBOE’s volatility index, which gauges market expectations “of near-term volatility” according to S&P 500 Index option prices.
Stutland’s comments came during CNBC’s “Fast Money.” During the show he claimed Bitcoin, like VIX, can now be considered an indicator of fear and volatility in traditional financial markets. Stutland stated:
"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."
Holding Crypto Is Like Storing Money Under A Pillow
Per Stutland, cryptocurrencies are still an unregulated way for investors to transfer capital. These can, for example, convert their fiat money into cryptocurrencies when banking institutions increase credit risks. He said:
“Bitcoin is a way to for investors to basically move their money off the balance sheets of banks and into their own wallets. Essentially storing their money under their pillow in the form of virtual currency."
The investment professional added that there’s a positive correlation between market volatility and credit risk, as when there’s an increase in credit risk, there seems to be a proportional increase in market volatility.
Notably, 2017 wasn’t a very volatile year for the stock market, especially if compared to the cryptocurrency ecosystem. Various analysts suggest institutional investors have not yet made their way into the crypto market because of challenges they’d face with safely and securely storing cryptocurrencies. The added liquidity is set to, presumably, reduce volatility.
Cryptocurrency custodian services and regulated crypto exchanges will reportedly help solve the problem, and some businesses are already looking into it. As reported, UK’s LMAX Exchange, which has facilitated the trade of $10 trillion in fiat currency, recently announced plans to launch a regulated cryptocurrency exchange
VIX rose to a high of 18.39 on Tuesday, after falling to a low of 12.59 last Friday. The Dow Jones Industrial Average also closed almost 500 points lower on Tuesday. Meanwhile, Bitcoin is currently trading at around $7,520, down from almost $10,000 on May 5 according to data from CryptoCompare.