Bitcoin (BTC) Trading [Somewhat] In Step With The Volatility Index
Although Bitcoin (BTC) remains just hundreds of dollars away from its yearly low, the flagship crypto asset has regained boatloads of volatility in recent weeks. Some days throughout the past weeks have seen BTC, along with its altcoin brethren, swing by double-digits.
Interestingly, a report from the Wall Street Journal’s in-house crypto expert, Paul Vigna, has claimed that BTC has begun to trade in step with gold, accentuating how Bitcoin is likely the second coming of the orange(ish) precious metal.
Purportedly citing data from market analytics firm Excalibur Pro, the WSJ noted that while Bitcoin’s correlations to other asset classes are often non-existent, they remain “measurable.” More specifically, according to a scale that ranges from -1 to +1, BTC is currently trading at a 0.84 correlation to gold. This figure was gathered by market data pushed out over the past five days.
Using the same scale, Excalibur calculated that Bitcoin is trading at a 0.77 correlation to the Chicago Board of Options Exchange’s VIX index, which measures market volatility across equities (namely publicly-tradable stocks).
Explaining why the latter statistic, which highlights crypto’s correlation with the so-called “fear gauge” of the centralized financial realm, is pertinent, Vigna laid out a pertinent catalyst. The journalist drew attention to quantitative easing (QE) enlisted by global economic heavyweights, namely the U.S. Federal Reserve, that have “flooded global markets with liquidity,” while also decreasing benchmark interest rates to spur investments into riskier assets. As put by Vigna, “there is no riskier asset than a rebel currency (BTC).”
And with the Dow Jones, S&P 500, and Nasdaq all recently falling victim to the tumultuous action that Bitcoin faces every day, it becomes apparent why VIX has begun to line up with BTC’s fluctuations in value.
Alex Kruger, a prominent pro-Bitcoin economist, also made a statement about the relationship between QE and BTC in a recent Twitter thread. Kruger, based in Manhattan, New York, explained that QE was “partially responsible” for the birth and success of BTC. More specifically, the presence of QE sparked hate towards centralized bankers, while essentially encouraging consumers to siphon money into nascent/risky investment opportunities, such as cryptocurrencies and emerging markets.
But with QE starting to move away from the public spotlight, maybe volatility in the cryptosphere will begin to ease, especially Bitcoin’s value proposition as digital gold becomes realized.
As mentioned earlier, in the recent influx of chaos into global markets, BTC’s price action has eerily begun to match up with that of gold. Although this could just be a coincidence, some have seen this as a sign that Bitcoin is truly becoming the digital embodiment of gold.
Per previous reports from Ethereum World News, Bobby Lee, the co-founder of BTCC and the brother of Litecoin’s Charlie Lee, took to Twitter to drop a few ‘knowledge bombs’, as it were. Likely referencing Bitcoin’s claim-to-fame as the digital equivalent of gold, and humanity’s de-facto go-to store of value, Lee explained that all BTC in circulation (market capitalization) is now one-hundredth the value of gold, a purported $8 trillion.
Keeping this relatively small valuation in mind, and his thoughts that Bitcoin’s unique nature as a scarce, borderless, uncensorable, and transparent store of value, the “defender” of Bitcoin alluded to the fact that over time, BTC could oust gold. And this most recent bout of correlation may be the beginning of Bitcoin’s trek to overtake the precious metal.
Title Image Courtesy of Michael Steinberg via Pexels