Traders work on the floor of the New York Stock Exchange (NYSE) in New York City, U.S., May 24, 2016.

  • Cryptocurrencies are increasingly correlated with the CBOE Volatility Index, better known as Wall Street’s “Fear Index.”
  • That’s according to a note from global financial strategist Masao Muraki and his team at Deutsche Bank.
  • The correlation relates to the fact that a low volatility environment encourages investors to move into riskier assets, like cryptocurrencies, to achieve decent returns on their investments.

LONDON – There’s a growing relationship between the price of bitcoin and the VIX, the volatility index colloquially known as Wall Street’s “Fear Index,” according to analysts at Deutsche Bank.

Writing in a note circulated to clients on Friday, Deutsche Bank global financial strategist Masao Muraki, alongside his colleagues Hiroshi Torii and Tao Xu, said that in the three weeks of 2018 so far “correlation between Bitcoin and VIX has increased dramatically.”

Right now, market volatility is close to record lows, as measured by the CBOE Volatility Index, the most widely followed barometer of expected near-term stock market volatility. Simply put, markets are pretty dull, with little to no major fluctuations going on. Stocks simply keep rising.

That, in turn, is leading investors to look for more and more risky ways of making money, which Deutsche Bank believes is part of the reason for the huge rise seen in the cryptocurrency markets in recent months.

“The current ‘triple-low environment’ of low interest rates, low spreads, and low volatility has given birth to new asset classes like implied volatility (ETFs selling volatility), and cryptocurrencies,” the reports authors write.

But where does the correlation between volatility and bitcoin come in? Here’s the explanation from Muraki, Torii, and Xu (emphasis ours):

“Cryptocurrencies are closely watched by retail investors, affecting their risk preferences for stocks and other risk assets. Although institutional investors recognize that stocks and other asset valuations may have entered bubble territory (US equities’ average P/E is around 20x), they Read More Here