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VIX's Second-Largest Spike in History Indicates a Local Bottom for Bitcoin: Van Straten
The VIX jumped 74% yesterday after a 25bps rate cut and a hawkish outlook from Fed Chair Jerome Powell.
What to know:
- Markets reacted negatively to the Fed's 25 basis point cut and hawkish outlook, causing bitcoin to tumble below $100,000 and U.S. equities to drop by 3%.
- The CBOE Volatility Index (VIX) jumped 74% on Wednesday, marking the biggest one-day jump since Feb. 5, 2018.
- Historical data suggests that significant spikes in the VIX are often followed by strong performance of bitcoin and the S&P 500.
Wednesday, Dec. 18, will go down in history as a day of market panic triggered by the 25 basis point Fed rate cut and Chair Jerome Powell's hawkish outlook.
Bitcoin (BTC) briefly tumbled below $100,000; U.S. equities dropped around 3%, while the dollar index (DXY) index soared to a two-year high of 108, which continues to put pressure on currencies worldwide.
STORY CONTINUES BELOW
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The most significant movement came from the CBOE Volatility Index (VIX), which skyrocketed by 74%, marking the largest one-day jump in the Wall Street's so-called fear gauge since Feb. 5, 2018. It was also the second-largest increase in its history. The VIX serves as a measure of market fear and expected volatility over the next 30 days.
Historically, significant spikes in the VIX have marked local bottoms for both bitcoin and the S&P 500.
Examining the top three one-day changes in the VIX, the first occurred on Feb. 5, 2018, when it surged by 116%. On that day, bitcoin plunged 16% to $6,891, which turned out to be a local bottom. By Feb. 20, prices had rebounded to over $11,000.
The second-largest spike in the VIX occurred on Dec. 18, registering a 74% increase.
The third biggest spike happened on Aug. 5, 2024, during the Yen carry trade unwind, when the VIX jumped 65%. On that occasion, bitcoin dropped 6% to hit a local bottom around $54,000 and climbed back up to over $64,000 by Aug. 23.
A similar pattern has consistently played out in the S&P 500 over the years, data shared by Charlie Bilello, chief market strategist at Creative Planning, show.
Let's see if history repeats itself. At press time, BTC traded above $102,000 while the S&P 500 futures pointed to a positive open with a 0.37% gain.
James Van Straten
James Van Straten is a Senior Analyst at CoinDesk, specializing in Bitcoin and its interplay with the macroeconomic environment. Previously, James worked as a Research Analyst at Saidler & Co., a Swiss hedge fund, where he developed expertise in on-chain analytics. His work focuses on monitoring flows to analyze Bitcoin's role within the broader financial system.
In addition to his professional endeavors, James serves as an advisor to Coinsilium, a UK publicly traded company, where he provides guidance on their Bitcoin treasury strategy. He also holds investments in Bitcoin, MicroStrategy (MSTR), and Semler Scientific (SMLR).
