Bitcoin: The Risk Asset
When the Omicron defat variant fears broke over the US Thanksgiving at the end of November BTC prices were remarkably resilient. There then followed a whole week where worries grew about a more infectious variant that at least had the potential to be vaccine-resistant. Through all the worry BTC held. That was until last weekend over December 04 and December 05 when BTC fell around 30% Ouch! It falls like these that keep many investors away. Many retail investors will use some degree of leverage. If you are using wide stops and high leverage the risks being taken can quickly become unmanageable.
BTC and the VIX
The VIX is a volatile index that reflects options in the S&P50 market. Equity traders are notoriously averse to risk. As a consequence when S&P500 traders fear a downturn in stocks they will purchase S&P500 puts. As these numbers of puts increase the VIX rises giving a proxy as to how concerned equity traders are. Obviously, the higher the level of the VIX the greater the concern and that results in greater S&P500 falls. So, the rule is that when the VIX is rising stocks are falling. See the chart below.
It is also noteworthy that the BTC sees similar phenomena. When the VIX is trading at elevated levels, and the markets are risk-averse, that also works out as selling pressure for BTC. Are investors liquidating positions in BTC to offset other losses? In some cases, yes. However, the main takeaway is that BTC trades as a speculative risk asset. Therefore, the next time markets are clearly risk off, but BTC is holding it is not unreasonable to expect BTC falls.