There is a Dramatic Correlation Between Bitcoin and Wall Street’s ‘Fear Index’

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According to Deutsche Bank, there is a strong relationship between the price of Bitcoin and the VIX index. The VIX is known as the volatility index Wall Street’s ‘Fear Index’. The experts working in the matter have explained that the correlation has increased dramatically the first three weeks of 2018. The study has been presented to clients on Friday

‘Fear Index’ Relationship with Bitcoin

Deutsche Bank financial strategists Masao Muraki, Hiroshi Torii and Tao Xu explained that the ‘correlation between Bitcoin and VIX has increased dramatically.’ The Index measured by the CBOE is near to its record lows. At the moment, the markets are in a growing trend that is pushing investors towards riskier investments. That’s why cryptocurrencies may be gaining momentum when the stock market has a low volatility.

Cryptocurrencies are riskier investments. Its volatility has been around 7.2% in the last two months, according to the Bitcoin Volatility Index. This situation allows investors to take riskier decisions and have higher returns for them. The stock market is simply rising without the possibility for investors to buy sell assets profitably.

Muraki, Torii and Xu explain:

“Cryptocurrencies are closely watched by retail investors, affecting their risk preferences for stocks and other risk assets. Although institutional investors recognize that stocks and other asset valuations may have entered bubbly territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-tasking. Now a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate sustainability of asset prices.”

Cryptocurrency Market During the Last Days

During the last days, the market has been stable after finding an important correction to almost every cryptocurrency. The market lost an important percent of the market capitalization it had before the correction. The total market capitalization of the cryptocurrency market arrived at $830 billion dollars the first week of January. Between January 15^th and 16^th, the market lost almost half of its market capitalization, reaching $439 billion dollars.

Bitcoin was able to reach $20,000 dollars before crashing to almost $9,800 dollars per coin. Besides that, its market dominance has been decreasing during the last year. It has reached its lowest point 10 days ago when it was 32,48%.

Other cryptocurrencies known as alt-coins had the most important increase since December. For example, Ethereum doubled its market dominance from 9% up to 18% (Cryptokitties helped). But it is interesting to mark that smaller cryptocurrencies have been gaining momentum. Other believe that this is a pump and dump scheme. But the reality is that since the beginning of the year they keep the market gained. It will be important to follow how these currencies will develop in the future.

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