The data shows that Bitcoin behaved more like a risk-on asset as it reacted to volatility in its price movements.
Bitcoin Cements Itself as a Risk-On Asset in The Year 2021
As per the latest weekly report from Arcane Research, BTC has behaved like a risk-on asset this year as the crypto’s price has seemed to follow VIX.
“VIX” is the ticker symbol for the Chicago Board Options Exchange’s Volatility Index. This index tells us about the stock market’s expectations of the volatility based on S&P 500 index options.
While the official name is the CBOE volatility index, the name “VIX” has caught on as the most popular way to refer to it.
VIX is an indicator of market volatility that monitors the next 30 days. The index is also often referred to as the “fear gauge.”
If the index’s value is high it could indicate that there will be more volatility in the stock markets in the future. However, low index values could indicate that there might soon be low volatility.
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This chart shows how the VIX Index and Bitcoin’s price are related.
BTC seems to have become increasingly related with the index in recent years. Source: Arcane Research Weekly Report - Week 51| Source: The Arcane Research Weekly Update - Week 51
As you can see in the above graph, during the year 2019, which is before COVID came around, Bitcoin didn’t seem to be affected by fear in the broader market.
After the COVID era’s monetary, fiscal and regulatory policies, institutions began to invest in the currency.
The relationship between VIX price and Bitcoin price in 2020 was not clear. But from the data of the year 2021, it’s visible that there is now a correlation between the two metrics.
The cryptocurrency has responded to fears in the stock markets during 2021. This shows that institutions investors consider it a risk-on investment.
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The report notes that because of this, it could be worth keeping an eye on VIX as fear in the stock market may have implications for BTC’s price.
At the time of writing, Bitcoin’s price floats around $47.5k, down 2% in the last seven days. Below chart displays the trends in bitcoin’s prices over the last five working days.
BTC has seen a plunge in price over the past few days. Source: BTCUSD at TradingView| Source: BTCUSD on TradingView
Unsplash.com featured image, Charts from TradingView.com and Arcane Research charts