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.

The Week: Facebook Faces Congress and Roubini Seeks Revenge

Over the past week, Facebook received a grilling in a congressional hearing over its Libra proposal, the CFTC began investigating BitMex over unregistered activity among its VPN-wielding US user base (prompted by Professor Roubini’s crusade against the platform, perhaps?) and a study found that 94% of transaction data on the BSV blockchain comes from {suppresses snigger} a weather app.

Facebook questioned on ability to deplatform users

Regulatory scrutiny of Facebook’s proposed stablecoin, Libra, began in earnest as its project lead David Marcus faced the House Financial Services Committee in Washington. Among the topics of interest to the committee was whether Facebook would retain the power to censor user transactions in the same way it can ban users from its social media platform. Marcus remained tight-lipped on the matter, answering “I don’t know yet.

Ethereum considering Bitcoin Cash as scalability ‘stopgap’

It’s safe to say that Vitalik Buterin isn’t widely popular among the Bitcoin community, a proportion of whom blame him for the glut of cheap ERC-20 tokens flooding the market and tarnishing the integrity of the space. The news that Vitalik is considering using the BCH blockchain, equally a source of contempt for hardcore bitcoiners, as a data layer to assist with the transition towards Ethereum 2.0 will likely do little to reverse such sentiments.

Thieves attempt to storm the Bitcoin Embassy

Virtual crimes are commonplace in crypto, exemplified by notable hacks at major exchanges. Physical attacks, on the other hand, aren’t so common. The reason for this can be better understood following a raid on The Bitcoin Exchange in Birmingham, where the robbers left empty handed after discovering there was nothing there to steal.

The long take

What now for Coinbase’s retail strategy?

In September 2018, Coinbase proudly announced the launch of a new product aiming to capture evident retail interest in crypto. Branded as Coinbase Bundle, the product gave investors the opportunity to purchase a market-weighted basket of the top cryptoassets, which included Bitcoin, Ethereum, Bitcoin Cash, Litecoin and Ethereum Classic. The set-and-forget nature of the offering seemed perfectly suited for a large market segment unfamiliar with the ins and outs of crypto and perhaps feeling a sense of overwhelm at the wide selection of assets they see on competitor sits such as Binance. In a new and untested asset class, diversification seemed like a sensible investment strategy. The launch was accompanied with marketing materials showing the purchase of such a basket would have yielded 160%+ returns over the course of that year.

More than nine months later and it’s of little surprise to learn that Coinbase has discontinued the product. In what’s been a dismal period for alts – the majors included – the market has shown little diversity on which to build a healthy and resilient portfolio. In fact, a $100 investment into the bundle a year ago would have dwindled to a paltry $20. Maximalists would rejoice in the unarguable statement that ‘you’d have been much better just buying Bitcoin’.

Coinbase, at least in recent years, has never been about ‘just buying Bitcoin’. Positioned as a trustworthy and unintimidating venue for the retail investor, the platform has put a lot of effort into distinguishing itself from cut-throat trading venues such as BitMex and shady bucket shops like the Cryptopias of the world. As the presentable face of crypto, it wants to be able to offer retail customers access to a range of attractive investment opportunities. So far, these have not been forthcoming. Ethereum, despite a recent recovery, is still down heavily from its ICO-hazed all-time high, Bitcoin Cash can safely be labelled the loser from the contentious 2017 fork, Ethereum Classic somehow still exists despite an embarrassing 51% attack and Litecoin is currently feasting on the ‘halvening’ narrative despite the real risk of miner shock. Furthermore, recent additions to the platform such as XRP, XLM, EOS and ZRX have failed to ignite, dropping precariously since their respective listings. The surprise addition of LINK has potentially broken the trend, however there is still little evidence mainstream investors are lining up to use the platform.

The real question is whether the crypto space is mature enough for a multi-coin offering to exist on a newcomer-focused platform like Coinbase. The venue has profited massively as a fiat on-ramp for millions of customers, but while its regulation-dodging competitor Binance continues to attract more than $1.5 billion in volume daily, offering products its customers really want such as IEOs, an exotic selection of coins and now (gulp) margin trading, why would anyone shop at Coinbase for their altcoins?

The future of Coinbase holds two realistic possibilities; one is that the alt space regains strength and casual retail investors are (re)attracted to the space, where they then see Coinbase as a safe haven for their long-term crypto investments. The other, while ‘heartbroken’ Brian Armstrong would be loath to accept it, is that that they’re forced to fully embrace their position as a place where people can easily onboard to the asset that has outperformed most traditional asset classes in recent years. To paraphrase a popular twitter meme: Bitcoin doesn’t need a bundle.

Tweets of the week

The Crypto Fam spreads some much-needed hopium on the prospect of another altseason:

Sean Ryan Adams provides an irreverent take on the Facebook hearing:

Lil Bubble quips on the forthcoming miner emission halvening event:

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