1 year ago
The Bitcoin terms has presently stabilized powerfully astir the $17,000 mark. However, the terms could look further headwinds successful the coming days, arsenic the VIX exposes.
The VIX is simply a real-time volatility scale from the Chicago Board Options Exchange (CBOE). It was created to quantify marketplace expectations of volatility.
In doing so, the VIX is forward-looking, meaning that it lone shows the implied volatility of the S&P 500 (SPX) for the adjacent 30 days.
Basically, if the VIX worth goes up, the S&P 500 volition apt spell down, and if the VIX worth goes down, the S&P 500 volition apt stay unchangeable oregon spell up.
This is precisely what was seen yesterday. The VIX bounced up to 19, a level that was past seen successful mid-August. As a result, the S&P 500 mislaid the play enactment country astatine 4040 and fell 1.8%. In August, the past clip the VIX was this low, it rebounded, and the S&P 500 fell 15%.
VIX,1D illustration Source: TradingViewThe Importance Of The VIX For Bitcoin
Besides the VIX and the S&P 500, it is important to recognize that Bitcoin, with higher beta, is highly correlated with the S&P 500. This means that the Bitcoin terms is much delicate to changes successful the marketplace successful some directions.
As predicted by the VIX, BTC bounced disconnected the $17,400 horizontal absorption yesterday and dropped beneath $17,000.
In October, erstwhile the VIX was down, and the S&P 500 was up, Bitcoin experienced a achromatic swan lawsuit with the FTX collapse, aft which BTC fell to $15,500. Thus, the Bitcoin terms did not bask the momentum of the VIX.
At the moment, a imaginable reversal of the VIX astatine 19 could service arsenic a benignant of sentiment barometer for the S&P 500 and Bitcoin for the adjacent fewer weeks. The VIX is being compared to the 2006-2009 crash, a nasty outlook that would mean overmuch little prices.
Analyst Sam Rule writes that the caller BTC rally pursuing stocks is occurring astatine a clip erstwhile the VIX is depressed to a level of 20. Although determination has been a monolithic manufacture leverage wipe-out successful the crypto industry, the banal marketplace has yet to acquisition specified an event.
Given Bitcoin’s correlation with the S&P 500, this could mean different terms drop, arsenic Rule writes:
Is 25% drawdown from ATH each we’re getting successful S&P 500 this rhythm during the popping of the large everything bubble? Would you expect #BTC to bottommost present if SPX script fell >40% from ATH successful coming months?
SPX drawdowns from ATH 1-week, Source: Twitter
Why VIX Has Limited Applicability To BTC
However, the VIX should not beryllium utilized arsenic the sole deterministic indicator of aboriginal marketplace direction. Why?
The VIX relies connected expectations acceptable by past events alternatively than what volition hap successful the future. Investors are notoriously prone to irrational exuberance.
In addition, the VIX cannot relationship for sudden, unexpected events that tin origin beardown marketplace reactions. However, these events are cardinal to identifying a alteration successful marketplace direction, specified arsenic a carnivore marketplace bottom.
Therefore, Bitcoin investors should besides support an oculus connected different factors, specified arsenic the upcoming determination by the U.S. Federal Reserve connected further involvement complaint policy, further contagion effects successful the crypto market, and different intrinsic factors, specified arsenic miner capitulation.
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