Risk On Trade Correlation Between Bitcoin And Wall Street’s Fear Index Raises Alarm Bells

Deutsche Bank’s Global Monetary Strategist, Masao Muraki, published a report showing how Bitcoin’s price tag is inversely related to the Chicago Board of Exchange’s VIX index (nicknamed the Worry Index). The VIX makes use of options to calculate near-term volatility for the S&P 500 and is a good gauge of investor sentiment.

A lower VIX number indicates investors are expecting less volatility and a higher VIX indicates higher expected volatility. A lower VIX corresponds to investors being more complacent about the equity markets, and a higher VIX means investors are more uncertain about the market’s direction.

Muraki’s graph starting on December 1 last year shows that as the VIX decreases, the white line, Bitcoin’s price tag moves higher, the orange line. This is the Threat On trade. Conversely, as the VIX increases Bitcoin’s price tag tends to fall. This is the Danger Off-trade.

While it has had short-term spikes higher, the VIX has been on a downward trend since 2009 when it was in the 80’s during the stock market bottom. It closed at 11.08 on Friday.

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