The bitcoin price is highly unstable just like all other cryptocurrencies, however, a distinct pattern has popped up from that instability which may have more consequences for the general traditional financial markets.
The CBOE Volatility Index, or VIX, is a well-known gauge of instability in the general marketplace previously used by traders to help them determine the level of fear by investors in the market.
Brian Stutland, VIX analyst and President of Equity Amor Investments also known as “The Fear Merchant” is of the opinion that the bitcoin price is actually predicting the VIX one month ahead.
He went on to add that:
“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.”
Given that cryptocurrencies lack control and permits investors to transfer their money off the balance sheets of banks and cut down on credit risks, Stutland believes they may be using bitcoin as a safe haven from the stock market regardless of the instability of the former to avoid credit risks by placing their money in a more “off-grid” position.
“Bitcoin is a way to for investors to basically move their money off the balance sheets of banks and into their own wallets,” he added. “Essentially storing their money under their pillow in the form of virtual currency.”
SEC Chairman Jay Clayton noted that even though stock traders are given the impression that given the unstable nature of bitcoin, they should go in for more stable havens, he stated that recently bitcoin is surprisingly less unstable compared to the VIX.
“Just recently the volatility in bitcoin was not as great as the volatility we’ve seen in other securities, such as the VIX product,” said Clayton.
The importance of shunning credit threats in addition to the median stability offered by bitcoin as opposed to the stock market generally may have transformed bitcoin into a leading determinant in the stock market.