Is Bitcoin’s price predicting investor confidence?

An investment analyst has said he believes that Bitcoin is currently the secret to predicting the confidence of investors, here’s why.  

Brian Stutland of Equity Armor Investments, has said he believes that the price of Bitcoin is rapidly becoming a great indicator of how stock markets are going to move in the future. Indeed, he told CNBC that Bitcoin’s market is rapidly replacing the VIX volatility index, which has been a long-standing measure of ‘fear’ among traders, based on the price of US S&P500 stock options – prices agreed for possible future purchases. It is interesting because it produces an index score based on implied future prices as compared to past performance, thus gaining its reputation as a predictor of how confident investors feel. Now, though, Bitcoin may be claiming that mantle.

“Bitcoin is sort of becoming the new VIX, in sort of getting ahead of credit risk in the banking industry,” Stutland told CNBC’s Fast Money on Tuesday.

“There is huge correlation right now between VIX and bitcoin 30 days ago, 30 trading days ago, that is starting to measure out credit risk in the market,” Stutland continued. “That’s what cryptocurrency is becoming. It’s becoming a way to sort of de-risk yourself from credit risk in the banking industry.”

So, while Stutland backed away from saying bitcoin could predict, say, changes in the stock market, he was keen to promote it was as a way of predicting the confidence of investors in banks. That would mean, if he is correct, that investors are currently concerned about the credit banks are labouring under – and that the spike in Bitcoin’s price – which saw it jump back over $10,000 last month, before receding again – was indicative of the growing behind-the-scenes anxiety that is only now being seen in the VIX as political problems in Italy and between the US and China now play out in public. Essentially, he believes that crypto was being used as way for investors to transfer capital away from that risk, essentially shielding it from any potential credit crunch in the future, but – as the price has now come down – serious fears of problems have also receded.

“Bitcoin is a way to for investors to basically move their money off the balance sheets of banks and into their own wallets,” he said. “Essentially storing their money under their pillow in the form of virtual currency.”

And investors are more likely to be cautious with their money when banks have increased credit risks, Stutland said.

“As credit risk increases we get more volatility in the market,” he said.