According to Equity Armor Investment’s Brian Stutland, Bitcoin serves as the fear gauge in the market. This is because as the price of Bitcoin changes, the price of other cryptocurrencies change too and Bitcoin gives investors an advantage.
In his words:
“There is a direct relationship between VIX and Bitcoin.”
Cryptocurrencies allow investors to reduce the credit risks attached to moving their money off balance sheets. Stutland believes that Bitcoin may be responsible for the next movement of the market.
During Fast Money on Tuesday, Stutland said:
“Bitcoin is becoming the new VIX. It is sort of getting ahead of the risk attached to credits in the banking industry.”
VIX is an acronym for CBOE volatility index. It is the measure used to calculate fear and volatility in the marketplace and S&P 500 stock price options illustrate it. The VIX is, sometimes referred to as the fear gauge of the market. However, Stutland says that Bitcoin is the new fear indicator.
According to him, cryptocurrencies are becoming a medium for asserting credit risks in the banking industry. This makes sense since investors use cryptocurrencies as an unregulated way to transfer capital.
“Bitcoin gives investors an opportunity to transfer their money from balance sheets in banks right into their cryptocurrency wallets. This allows them to store money by their bedsides in the form of virtual currency. It makes investors more cautious with their money when financial institutions have high credit risks. As the credit risk increases, the market volatility also increases.”
On Tuesday, the VIX got as high as 18.39 which was a come back from the 12.59 low on Friday. On Tuesday was turbulent for the market as the three major indexes closed lower. The Dow Jones fell by 500 points.
Around 6:30 p.m ET, On Tuesday, Bitcoin sold at $7,500. This was a dip compared to May 5th when it traded close to $10,000.