May 14, 3:00 pm EST
A few weeks ago, the markets were skittish about elevated oil prices and 3% yields. Now we have oil above $70 and yields comfortably hanging around 3%, yet stocks appear to be in a solid post-correction recovery, now up 8% from the February lows.
Meanwhile the VIX has fallen back to pre-correction levels.
What about gold, another proxy on risk? Gold has been quiet, despite the correction in stocks. But that has a lot to do with bitcoin. Bitcoin has become the gold substitute.
Let’s take a look at the behavior of bitcoin, and the bitcoin/gold relationship.
You can see here, when the bitcoin frenzy was running hot late last year, gold was moving lower, as bitcoin was climbing to record highs.
The bitcoin mania peaked almost to the day they launched bitcoin futures, which allowed hedge funds to begin shorting it. And since, we’ve had this chart …
Bottom line: If we look at the rise in bitcoin as the proxy on risk-aversion (as a gold substitute), then this downtrend of the past five months supports the VIX chart and the stock market recovery. That said, given the mass speculation in bitcoin, if we were to get a sharp collapse, it would likely trigger risk aversion in global markets.
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