First Gold and Now the VIX Correlate with Bitcoin

First Gold and Now the VIX Correlate with Bitcoin

The latest research form digital exchange provider OKEx is indicating a correlation between the price of Bitcoin and the CBOE Global Markets Volatility Index (VIX) is nearing a year high. Their findings come just one month after they reached a similar conclusion about the relative valuations of gold and Bitcoin.

While both precious metals and Bitcoin can arguably be seen as a hedge against the fall of fiat currencies, negative bond yields and stock price declines, OKEx suggest it is the action in the VIX which may help in timing the market and making “…better BTC investment decisions.” 

Fear Gauge

Launched in 1993, the VIX is a real-time market indicator that tracks the expected volatility over the next 30 days of a basket of S&P 500 Index options. In doing so, it is seen as giving an insight into investor’s sentiments regarding risk in the market. The lower the number on the VIX scale, the lower the perceived risk but a higher VIX suggests the opposite; more volatility and higher stress can be expected.

As a rough guide, the CBOE show that at the height of the 2008 financial crisis the VIX surpassed a level of 80 but a more acceptable, calmer environment is expected to yield an average of around 17 to 19. At the time of publishing this article, the VIX stood at just 15.8.

Because of that balance of risk and stress, the VIX is often more commonly known as the “Fear Gauge” or “Fear Index” of Wall Street and for decades it has been used as an investment and analytical tool to sense levels of fear in the market allowing for corresponding trading or portfolio adjustments.

According to OKEx, the 90-Day rolling correlation between the VIX and BTC shows the “…correlation coefficient is approaching +0.2” which is near the highest level seen since January 2017 and close to the top of +0.3 in late December 2015 “…when the S&P nosedived to 1880 levels, and BTC surged from 300 to nearly 500.”

Despite Bitcoin’s relationship to the movement of the VIX and gold, OKEx point out that there is mostly negative correlation with the US Dollar Index (DXY), which again may be interpreted as positioning BTC as a hedge against falling or devaluing currencies.

Their findings lead OKEx to conclude that “In the world where interest rates are extremely low, and the uncertainty of sustainable growth is high, it’s reasonable to expect market volatility will get higher.” However they caution that “…the emerging BTC-VIX relationship isn’t a call to rush out and buy BTC, rather it’s one of the signs that indicate cryptocurrency trading and investment is getting more mainstream.”