Bitcoin Is Becoming the Market’s Fear and Volatility Indicator, Investor Argues

Omar Faridi
  • Cryptocurrencies are “becoming a way to sort of de-risk yourself from credit risk in the banking industry”, according to Equity Armor CIO Brian Stutland.
  • Bitcoin and CBOE’s Volatility Index have a “huge correlation,” which indicates that Bitcoin can also be used to gauge fear and volatility in traditional financial markets.

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."

Brian Stutland

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."

Brian Stutland

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.

Weekly Newsletter

Bitcoin Below $10K: Crypto Analyst PlanB Says 'Ignore the Noise, Focus on the Signal'

Siamak Masnavi

On Monday (February 17), as Bitcoin continued its fall below $10,000, popular pseudonymous analyst "PlanB" (@100trillionUSD) advised his followers on Twitter to keep their eyes on the big picture.

Bitcoin didn't have a great weekend.

According to data from CryptoCompare, Bitcoin started the weekend at $10,343, and ended it at $9,872, as you can see in the price-chart below:

BTC-USD 2 Week Chart on 17 Feb 2020.png

For holders of Bitcoin, the pain continued on Monday. By around 14:00, when PlanB took to Twitter, Bitcoin had fallen to $9,609:

BTC-USD 24 Hour Chart on 17 Feb 2020.png

This is when PlanB told his Twitter followers to "ignore the noise" and "focus on the signal":

In a Medium blog post published on 19 March 2019, PlanB talked about scarcity in terms of the stock-to-flow (SF) ratio -- where stock is "the size of the existing stockpiles or reserves" and flow is "the yearly production" -- and used this to model Bitcoin's value.

He wrote:

The predicted market value for bitcoin after May 2020 halving is $1trn, which translates in a bitcoin price of $55,000. That is quite spectacular. I guess time will tell and we will probably know one or two years after the halving, in 2020 or 2021.

In a tweet sent out last Monday, PlanB said that he expected the price of Bitcoin to be over $10K by the next block mining reward halving (expected on 12 May 2020), at which point he expects the major bull run to start, taking the Bitcoin price all the way to $100K before the end of 2021:

 

Featured Image by "geralt" via Pixabay.com