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Wall Street “Fear” indicator impedes Bitcoin’s growth

  • Bitcoin has been positively correlated with the Wall Street index since March 2020. 
  • BTC is at risk of losing some of its recent gains as experts warn about a downside move in the S&P 500 ahead.
  • The Cboe Volatility Index surged 41% above its historical average, stirring an extreme uncertainty among stock investors.

Bitcoin appears to be at risk of losing a part of its recent gains as a stock market fear indicator dubbed “VIX” explodes above its historical average. VIX, the Cboe-based indicator, measures the S&P 500’s 30-day forward-looking volatility. Experts use this indicator to realize investors’ fears and risk tolerance. A higher VIX increases the probability of highly volatile moves, eventually leading to a period of panic selling.

Since March, the S&P 500 has surged constantly, assisted by major rallies in the share prices of Tesla and Amazon. At the same time, however, the S&P 500’s VIX has increased by 41% above its average at nearly 29, according to Cboe. This indicates potential shakeups in the stock market’s near future. 

Bitcoin traders, on the other hand, have been monitoring the S&P 500 to confirm their next directional bias. This is because of BTC’s increasing monthly correlation with the Wall Street index since March. Skew data reveals that the realized correlation hit a record high in July 2020. An increasing VIX reading further validates its command over the Bitcoin market with its long-term negative correlation with the leading cryptocurrency. 

Kristina Hooper, the chief global market strategist at Invesco, said that fears of an increased VIX reading also reflects in the bond markets. The yield on the US 10-year Treasury bond is close to a record low of 0.67, indicating an increased demand for safe-haven assets. Gold is also up by 18% on a year-to-date timeframe.

Author

Rajarshi Mitra

Rajarshi Mitra

Independent Analyst

Rajarshi entered the blockchain space in 2016. He is a blockchain researcher who has worked for Blockgeeks and has done research work for several ICOs. He gets regularly invited to give talks on the blockchain technology and cryptocurrencies.

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