Should’ve Sold Vol in August & Bitcoin’s Growing Correlation
I thought the market felt a bit top-y back in the beginning of July and felt that it couldn’t have much steam left in it, somewhat like gold. Well I was wrong, and sat out a massive rally, but I was able to focus on other things in life though!
However, the equity rally this month may not have been the biggest opportunity I missed. Have a look at the below chart of the VIX versus the realized vol in the S&P:
The S&P has been realizing vol in the single digits while the VIX had been trading in the 20s. In other words, selling vol in August of 2020 was massively profitable.
I’ve been looking at bitcoin a bit recently too; I have held a small amount of bitcoin for some time, around a 1% position, and have added a bit.
I want to highlight bitcoins recent correlation with mainstream financial assets. Yesterday — gold, rates, and the dollar were all whipsawed by Jerome Powells remarks at the virtual Jackson Hole. Suprisingly, bitcoin moved in tandem with them:
Bitcoin was often thought as uncorrelated to financial assets. However its recent moves indicate otherwise. This could be a sign of more mainstream adoption among money managers. More mainstream adopt means more buyers and higher prices.
Future correlation to gold aside, I think this is very bullish for bitcoin. Since its float is quite small, and the ‘minting’ of new bitcoins is ever shrinking, if there is enough buying it will squeeze higher.
