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It is becoming increasingly clear that bitcoin has not really gained the reputation of being an "uncorrelated badet".
The last bitcoin sale of $ 6,000 to nearly $ 3,000 was accompanied by a steep rise in the CBOE volatility index (VIX). The VIX measures the forward-looking volatility of the S & P 500 over 30 days to measure the fear and risk tolerance of the market. This is why it is commonly called the "gauge of fear" of the broader US stock market.
In theory, the VIX should be low when the S & P 500 is on the rise and should only increase as fear, causing panic selling and preventing smart or weak hands from pulling out of the market.
Bitcoin, a store of value that is not the product of a government, is not affected by fear or perceived risk in any market. Yet, as the graph below shows, this is not yet the case.
BTC / USD vs VIX
The VIX printed two significant peaks in 2018. The first took place on February 6, while it reached 50.3 and the second on December 24, where it reached 36.1.
At the first summit, the S & P 500 index was down nearly 10% from its January highs and at the second peak, it was closer to 20% of record highs barely two months ago .
Needless to say, fear was and still is prevalent in the broader US stock market, which should have resulted in a stable or bullish bitcoin, right?
False. Bitcoin inversely correlates with the VIX on both occasions. When the VIX reached its first peak, Bitcoin had just finished its 70% drop from its January highs, and at the second peak, its price had dropped by 50%.
The negative correlation of Bitcoin with the VIX shows that its operation is mediocre when fear in the US stock market creates a "risk free" environment – by definition, the opposite of a safe haven badet.
Gold vs Bitcoin
As a benchmark, the world-renowned safe haven badet, gold, positively correlated with the VIX at its two major peaks in 2018.
During the VIX summit in February, gold ($ US / OZ) traded widely for $ 1,300 to $ 1,370 and only started to drop to about $ 1,160 in May, when VIX sank and the S & P 500 regained strength.
Gold, again, correlated with the VIX at its December peak. As stocks began to fall and fears of a global economic downturn were circulating, the shiny metal had already been in a 20 week period and an uptrend of over 10%.
Indeed, the material physical reserve of value still deserves the name of safe haven, whereas the digital alternative has not yet been able to do so.
Disclosure: The author holds the following diplomas: BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.
reflection of the bear cub via Shutterstock
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