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This volatility indicator can help you find your way in the digital asset market
- Data shows that the correlation between BTC prices and the VIX is near a year high.
- Global uncertainties pushed the VIX higher, could create additional opportunities for cryptocurrencies.
- Investors should cross-reference the correlation data before making any trade decision.
August has been a volatile month so far for both financial and cryptocurrency markets. Declines in bond yields and inverted yield curves have been widely discussed in recent days, and the worries over a possible recession in the US resulted in some wide swings in global equities and FX and commodities prices. Of course, BTC and crypto were no exception.
Besides the high correlations between BTC and gold, the leading cryptocurrency has also shown relationships with the CBOE VIX, and that tie is getting closer.
On the back of the US-China trade war, the Brexit saga, and the rising geopolitical tensions around the world, it’s valid to assume volatility has a greater upside bias in the short/medium-term. How could we leverage those correlations to make a better BTC investment decision?
What is VIX?
The Volatility Index or VIX is created by the Chicago Board Options Exchange (CBOE). It’s a real-time market index that tracks the 30-day implied volatility of a basket of S&P 500 Index options. It’s also known as Wall Street’s “Fear Gauge” or “Fear Index”.
- A higher VIX suggests that traders expect the S&P 500 to become more volatile and stressful.
- A lower VIX indicates that options traders expect the S&P 500 to be less volatile and more stable.