Data shows that Bitcoin has increasingly behaved like a risk-on asset in the year 2021 as its price movements have reacted to the VIX volatility index.
Bitcoin Cements Itself As A Risk-On Asset During 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.
The VIX index is a real-time indicator that measures the expected volatility in the market for the coming thirty days. The index is also often referred to as the “fear gauge.”
When the value of this metric is high, it means a greater volatility in the stock market may follow in the near future. On the other hand, low values of the index would suggest a period of low volatility might be there soon.
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Now, here is a chart that shows the apparent relationship between the price of Bitcoin and the VIX index:
Looks like BTC’s price has increasingly become related to the index over the past few years | 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.
However, following the monetary and fiscal policies that were approved during the COVID era, institutional investors started getting interested in the coin.
In 2020, the relationship between VIX and the Bitcoin price was still unclear. But from the data of the year 2021, it’s visible that there is now a correlation between the two metrics.
Bitcoin has responded to fear in the stock market during 2021, showing that institutional investors for the most part consider the crypto to be a risk-on asset.
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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. The below chart shows the trend in the price of the coin over the past five days.
BTC’s price has plunged down in the last few days | Source: BTCUSD on TradingViewFeatured image from Unsplash.com, charts from TradingView.com, Arcane Research