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.

Billionaire Mark Cuban Compares Bitcoin to Gold

Michael LaVere
  • Mark Cuban sees bitcoin and gold as "being the same thing."
  • Bitcoin is increasingly being valued as an alternative and store of value asset. 

Billionaire Mark Cuban has weighed in on the debate between bitcoin and precious metals, claiming that he considers both assets to be in one and the same.

Bitcoin's Finite Supply

Cuban, who owns the Dallas Mavericks NBA basketball team and is well-known for being on the TV show 'Shark Tank', framed his comments in the context of investing in collectibles, such as gold. The billionaire said that he hates gold as an investment, and considers bitcoin to be in a similar basket of assets that are based upon market supply and demand. 

Speaking in an interview with Kitco News on Aug. 9, he said, 

“They’re both collectibles. The value is based off supply and demand.”

However, Cuban contended that bitcoin has an advantage over gold and precious metals in its clearly defined total supply. 

He continued, 

“The good news about Bitcoin is there’s a finite supply that’ll ever be created.”

While the world has a finite amount of gold and silver, it becomes more difficult to quantify, in addition to keeping track of the circulating supply. In contrast, there will only ever be 21 million bitcoin, with the last BTC predicted to be minted in the year 2140. As of Aug. 1, 85% of the world’s total bitcoin supply has already been mined

Despite putting bitcoin a peg above precious metals due to its finite supply, Cuban lumped cryptoassets in with gold. He said he sees bitcoin and gold as “being the same thing,” before going on to give an abysmal opinion of the latter. 

When asked how he felt about gold as an investment, Cuban said, 

“Hate with extreme prejudice is not enough. Hate with double-extreme prejudice with an ounce of hot sauce.”

Gold Debate Heating Up

Gold and precious metals have increasingly been compared to bitcoin, particularly with the rise in BTC's price throughout 2019. While gold has traditionally been a harbor for investors during times of economic uncertainty--such as the global recession looming on the near horizon--bitcoin has established itself as a digital store of value. 

In July Ray Dalio, head of the world’s largest hedge fund, published a treatise where he called gold a “good bet” and gave reasons for investing in precious metals given current and future market conditions.

Dalio wrote, 

“[Investments] that will most likely do best will be those that do well when the value of money is being depreciated and domestic and international conflicts are significant, such as gold.”

While Dalio appears enamored with gold, many of the arguments he generated could equally be applied to bitcoin. According to a recent report by Delphi Digital, global economic factors such as the US-China trade war, falling interest rates and general distrust for the market has bred the “perfect storm” for bitcoin which could take the price even higher in 2019 and beyond.