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