Correlation between bitcoin and Wall Street's 'Fear Index' is increasing

[alyssa85]

http://uk.businessinsider.com/bitcoin-price-wall-street-volatility-index-correlation-deutsche-bank-2018-1

There's a growing relationship between the price of bitcoin and the VIX, the volatility index colloquially known as Wall Street's "Fear Index," according to analysts at Deutsche Bank.

Writing in a note circulated to clients on Friday, Deutsche Bank global financial strategist Masao Muraki, alongside  his colleagues Hiroshi Torii and Tao Xu, said that in the three weeks of 2018 so far "correlation between Bitcoin and VIX has increased dramatically."

Right now, market volatility is close to record lows, as measured by the CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility. Simply put, markets are pretty dull, with little to no major fluctuations going on. Stocks simply keep rising.

That, in turn, is leading investors to look for more and more risky ways of making money, which Deutsche Bank believes is part of the reason for the huge rise seen in the cryptocurrency markets in recent months.

"The current 'triple-low environment' of low interest rates, low spreads, and low volatility has given birth to new asset classes like implied volatility (ETFs selling volatility), and cryptocurrencies," the reports authors write.

 But where does the correlation between volatility and bitcoin come in? Here's the explanation from Muraki, Torii, and Xu (emphasis ours):

"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 bubble territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices.

"The result is that institutional investors, who are supposed to value assets using their sophisticated financial literacy, analysis, and information-gathering strengths, are actually seeking feedback about the market from cryptocurrency prices (which are mainly formed by retail investors)."

Basically, Muraki argues, as volatility in traditional assets drops, the price of bitcoin and other reasonably mainstream cryptocurrencies rises, as investors look for a way to make money. Here's the chart from Deutsche Bank showing just that:

[davis196]

Maybe you should move this thread to the "Press" forum board.Anyway,the institutional investors have no choice other than invest into cryptocurrencies,if they want to maintain decent profits.
During the last years,the Federal reserve system and the European central bank were very active in prinitng trillions of fiat money.Now,the big corporations have lots of cash reserves and they want to invest them.
This creates bubbles in the various asset markets.

[Tapyaks72]

Maybe you should move this thread to the "Press" forum board.Anyway,the institutional investors have no choice other than invest into cryptocurrencies,if they want to maintain decent profits.
During the last years,the Federal reserve system and the European central bank were very active in prinitng trillions of fiat money.Now,the big corporations have lots of cash reserves and they want to invest them.
This creates bubbles in the various asset markets.

In deed it is a good presentation that explains why investors invest into a crypto currency which is volatile and a risky options of course your correct to earn  decent profit, I think economist is already aware how blockchain technology works, volatility as they always say about crypto currency is just in word but in reality as what  had observe is not happening to BTC. and even developing more trust for the investors.

[alyssa85]

Anyway,the institutional investors have no choice other than invest into cryptocurrencies,if they want to maintain decent profits.
During the last years,the Federal reserve system and the European central bank were very active in prinitng trillions of fiat money.Now,the big corporations have lots of cash reserves and they want to invest them.
This creates bubbles in the various asset markets.

The Federal Reserve has been hiking interest rates and they are reversing QE as well.

When bond yields are high enough, people might want to park their money in traditional assets again.

[pereira4]

The bond market is going to crash hard and all the boomers are going to hate themselves at not buying this cheap bitcoin.

Wall Street is irrelevant when it comes to bitcoin, futures markets don't matter, it's a waste of time, they don't move the underlying asset.

[olubams]

The bond market is going to crash hard and all the boomers are going to hate themselves at not buying this cheap bitcoin.

Wall Street is irrelevant when it comes to bitcoin, futures markets don't matter, it's a waste of time, they don't move the underlying asset.

What is currently happening is just showing that bitcoin does not follow the same pattern as other forms of currency. They started bitcoin future thinking it will just work like that unfortunately it was pure waste of time. Again, we read January 15 when bankers get their bonuses, it will be used to pump bitcoin again that also fail as the reverse is what we are seeing. I am tired of reading various theories with everybody trying to be a self acclaimed expert on the situation of things. It does not apply to bitcoin what will happen will surely happen.

[AK47-]

Good to see wall street Wall Street validate with statistics and analytics what crypto community has known since long. People don't have faith in BTC because it's a new currency. It was founded in 2009. How long have other currencies say $ or gold have been around? The more stable ones have been around longer. One FUD and people get scared, they start selling and price falls. BTC needs to survive multiple financial crisis, get better regulated and just stay relevant longer to be less volatile.

[uslfd]

This is a pretty big news because the implication is that there is already quite a lot of insitutional players in the bitcoin market who are also in the equity market.

[groundcontrol67]

This is a pretty big news because the implication is that there is already quite a lot of insitutional players in the bitcoin market who are also in the equity market.

I feel like that's been evident for quite some time, I think that money flowed in throughout 2017. It's a good indication that the market should recover in time, you would expect their entry would come a ways before mass entry from the general public.

[Barbarian]

Anyway,the institutional investors have no choice other than invest into cryptocurrencies,if they want to maintain decent profits.
During the last years,the Federal reserve system and the European central bank were very active in prinitng trillions of fiat money.Now,the big corporations have lots of cash reserves and they want to invest them.
This creates bubbles in the various asset markets.

The Federal Reserve has been hiking interest rates and they are reversing QE as well.

When bond yields are high enough, people might want to park their money in traditional assets again.

They are not going to reverse QE in the best case scenario they are just going to slow down printing money or to stop but they are not going to reverse it, this is a lie sold by some saying that the money supply is elastic but that is not the case, they always print more money but they never destroy it, besides who in his right mind will invest in bonds issued by governments that are basically bankrupted already.

[adaseb]

This is generally not good for Bitcoin.

Assume there is a recession starting soon. The fear index will grow and the VIX will reach new heights. Look at 2007-2008 VIX index.

If their analysis is correct, means Bitcoin will go down also.

[MNDan]

This is generally not good for Bitcoin.

Assume there is a recession starting soon. The fear index will grow and the VIX will reach new heights. Look at 2007-2008 VIX index.

If their analysis is correct, means Bitcoin will go down also.

Or up - way up. What did gold do in 2009?

[Barbarian]

This is generally not good for Bitcoin.

Assume there is a recession starting soon. The fear index will grow and the VIX will reach new heights. Look at 2007-2008 VIX index.

If their analysis is correct, means Bitcoin will go down also.

Or up - way up. What did gold do in 2009?

Yeah, bitcoin is a currency that is not subject to the same rules as any other currency, so while most currencies suffer when there is an economic crisis bitcoin has the potential to go up since it does not have a direct relationship with the economic system based on fiat and its scams.

[Nosk]

http://uk.businessinsider.com/bitcoin-price-wall-street-volatility-index-correlation-deutsche-bank-2018-1

There's a growing relationship between the price of bitcoin and the VIX, the volatility index colloquially known as Wall Street's "Fear Index," according to analysts at Deutsche Bank.

Writing in a note circulated to clients on Friday, Deutsche Bank global financial strategist Masao Muraki, alongside  his colleagues Hiroshi Torii and Tao Xu, said that in the three weeks of 2018 so far "correlation between Bitcoin and VIX has increased dramatically."

Right now, market volatility is close to record lows, as measured by the CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility. Simply put, markets are pretty dull, with little to no major fluctuations going on. Stocks simply keep rising.

That, in turn, is leading investors to look for more and more risky ways of making money, which Deutsche Bank believes is part of the reason for the huge rise seen in the cryptocurrency markets in recent months.

"The current 'triple-low environment' of low interest rates, low spreads, and low volatility has given birth to new asset classes like implied volatility (ETFs selling volatility), and cryptocurrencies," the reports authors write.

 But where does the correlation between volatility and bitcoin come in? Here's the explanation from Muraki, Torii, and Xu (emphasis ours):

"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 bubble territory (US equities’ average P/E is around 20x), they cannot help but continue their risk-taking. Now, a growing number of institutional investors are watching cryptocurrencies as the frontier of risk-taking to evaluate the sustainability of asset prices.

"The result is that institutional investors, who are supposed to value assets using their sophisticated financial literacy, analysis, and information-gathering strengths, are actually seeking feedback about the market from cryptocurrency prices (which are mainly formed by retail investors)."

Basically, Muraki argues, as volatility in traditional assets drops, the price of bitcoin and other reasonably mainstream cryptocurrencies rises, as investors look for a way to make money. Here's the chart from Deutsche Bank showing just that:

I'd love to see that graph updated with the latest data, especially today's.