Bitcoin Price Predicts Fear in the Stock Market
Bitcoin has become known for it high volatility over the past few years. It was at $200 leading up to the halvening in 2016, and reached $19,000 in December of 2017. That's a 95x increase in under 2 years. And it has recently been in the $6,000 range, which is a 3-fold decrease iv value. This volatility of major ups and downs makes Bitcoin a risky investment for many to get involved in.
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But the volatility of Bitcoin might be showing us another pattern at play in the larger market of traditional finance. Could the price of Bitcoin be predicting the fear of investors that influence the volatility int the overall marketplace, one month in advance?
CBOE Volatility Index (VIX) is a measure of the expectation of volatility from the S&P 500 index, and is also called the fear index or fear gauge. Brian Sutherland, a VIX analyst, says Bitcoin does predict the upcoming measurements of VIX:
"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." [CNBC]
In order to decrease credit risk, investors move their money "off grid" and out of banks, using Bitcoin as a safe haven. Money moves from the banker's balance sheets, and into the investors own wallet, a crypto wallet. Investors take their money out of banks and put it under their pillow, so to speak.
That's pretty wild. Bitcoin is actually more connected to the traditional market than I had thought. One would think the volatility of Bitcoin has traders avoid it, but it turns out that Bitcoin is more stable than the VIX recently.
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Can Bitcoin be used to predict the stock market's behavior? Are the tables be turning on the stock market, in favor of Bitcoin as a more stable option?
This could all be only correlation, without causation, but some people think there is a connection worth paying attention to. Bitcoin's increased stability over the stock market can turn Bitcoin into a leading indicator in the stock market. If the Bitcoin .vs. VIX analysis is accurate, then the stock market could see a bearish trend soon as Bitcoin is often poised to go up in the summer months.
As the traditional economies of the world fail and crash, cryptocurrencies will gain more traction and popularity with more investors seeking a safe-haven. This will drive crypto values up even more. It's a good thing to be in crypto early :)
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That would certainly seem a likely case. We already know that many mainstream people are investing in Crypto and Bitcoin specifically so this would be a natural progression. It's amusing seeing the dying throes of the traditional stock markets dominance on peoples money; the talking hats demonizing crypto and other coins in one minute then turning around and investing in it in another. It's similar to American politics honestly; the politicians say one thing in public and an entirely different story behind closed doors. Hillary was a perfect example of this. I would bet my meager crypto wallet that the majority of those high net worth people do this very same behavior but will not admit it until many years after the fact.
Yeah, maybe, fear to get people to sell,t hen they buy low... been done before :/
Ya unfortunately, there’s always scams to get things for cheaper nowadays, people focus on the bottom line too much rather than the big picture.
I never thought about a correlation between VIX and BTC. I've read the big theme for institutional investors is that cryptos are a non-correlating asset to the market and having 5-10% position can reduce the overall portfolio volatility. There is a fairly famous paper written to drive this thinking.
However, when I witnessed the crash on February 6th of bitcoin and all the cryptos at the same exact time as the crash in the broad stock market, it seemed instead of being a non correlated asset it was directly correlated.
Also, there is an argument whether gold will still play its traditional crisis hedging role it has played over history or if cryptos will take part of that role. I'm anxious to see how this all plays out. I'm well diversified in both cryptos and in gold/silver/platium/uranium minors and other related resources positions.
Damn, mr. diversity :P Good for you :) Gold and silver have been a bummer for 2 years... they are undervalued compared to the fantasy bubble of USD value... but ppl still have faith so it stay where it is and gold and silver suppressed..
Bitcoin is a separate asset class like gold and real estate. But it will need more stability in price to be considered a store of value. Right now with this high volatility and lack of any oversight, I don't see big money flowing into the market. We will see next bull run when tether starts printing more money without any real USD backing it.
As Bitcoin become more accepted by institutional investors (who are positioning themselves now) I think it becomes less volatile.
I doubt that tether or any other crypto becomes as important as bitcoin. Bitcoin has the first mover advantage and name recognition and many other crypto tokens will run on it's blockchain. One day we may see other blockchains become big enough to make their own markets that aren't so influenced by what Bitcoin does in the market. Right now, whatever Bitcoin does, the rest of the crypto market follows. I could see Etherium, EOS and NEO become dominant enough to have their own markets as their blockchains scale and become ecosystems themselves.
USDT is not as huge as bitcoin but then they start printing more tether without usd backing (speculation). they infuse more fake money and start this pumping up. Tech is solid but cryptos are not being used as currencies. they are used as trading assets right now.
Ultimately, blockchain technology that is behind every crypto token will stand on its own as a business. Right now the crypto token market is mainly being used a big pool of speculation, because it's not regulated and also for raising the capital that has been easily or readily available outside of the traditional banking or venture capital market. But when the entire Chinese digital economy is created, for instance, on top of the NEO blockchain, incredible problems are solves and massive savings are created, blockchain technology will no longer be a speculation but an investment that everyone will want to hold.
I m also waiting for neo to gain some traction. It has been quite good some time now
Isn't tether supposed to be backed by USD? Or I'm mistaken?
Its supposed to but they haven't had an audit of their accounts for more than 1 year now. Even auditor have quit citing disagreement.
I can see a day coming when people will look at the price of SBD and Steem, rather than the DJIA to determine what kind of day the economy had!
Could be :P
It for sure has potential, but I think bitcoin market or even whole crypto space is relevantly small in comparison to general market, if it continue to grow then we might start to notice a lot of correlations between markets. Plus a lot of old people(in big finance) are still skeptical about crypto and the decentralization idea.
True, this correlation might only be temporary.
From all indications bitcoin when down but something keep telling tell that it will still rise again, the cryptocurrency will still be general accepted in no distance time. Great post my friend @krnel
Yes it will rise again.
There no doubt that people are moving their money from banks to bitcoin or other cryptos, and is the biggest success of crypto. Now you are saying bitcoin soon shall see a dip and then it will rise again?
Yes it will probably rise again.
hope for good :)
Hopefully bitcoin prices move increasingly in the market and make bitcoin investment more passionate, hope we all
es impactante lo que han logrado las criptomonedas a nivel mundial. mas allá de lo económico nos unió a todos por una causa. El mercado ciertamente se puede manipular con el btc y sus precios serian algo mas locos pero se podrían aprovechar grande rebajas de precios, todo depende.
It is not that great of correlation. However, would be more interesting to look at put call implied volatility ratio. There may be some additional information.