As NewsBTC reported, the VIX skilled a pattern reversal final Friday which might be vital for Bitcoin as effectively.
The VIX volatility index exhibits merchants the anticipated vary of fluctuation of the S&P 500. Remarkably, there may be an inverse correlation between the VIX index and the S&P 500. A rising VIX index normally means falling costs for the S&P 500, and vice versa.
Rising VIX Threatens Bitcoin Bulls
The VIX dropped under the extent of 19 on Friday, a mark that has been extremely vital over the past yr.
In August, the final time the VIX was this low, it subsequently rose above 34, dragging the S&P 500 down 15%. Bitcoin additionally skilled a big downtrend, pushed by its correlation with the S&P 500.
On Monday, BTC bounced off horizontal resistance at $17,400 and fell under $17,000 as VIX initiated its pattern reversal with a stellar market open.
VIX. Source: TradingView
Yesterday, nonetheless, Bitcoin bulls initially appeared to have the higher hand. While the S&P noticed one other 1.4% plunge, the BTC worth remained comparatively steady at $17,000.
However, in the previous few hours, BTC registered a retracement of round 2% and $350. At one level, BTC fell to $16,691 after the VIX continued its uptrend and rose to a stage of twenty-two.46. At press time, the Bitcoin worth stood at $16,828.
Investors ought to take note of the VIX. If the VIX sees one other rise as we speak, the BTC bulls may lose steam. Then, the help zones at $16,600 and $16,300 are going to be key.
BTC worth, 4-hour chart. Source: TradingView
Will Friday Provide A Foreshadowing For Bitcoin?
So, given Bitcoin’s excessive correlation with the S&P 500, one other drawdown might be imminent. However, the VIX shouldn’t be used as the one indicator. The VIX depends on expectations based mostly on previous occasions.
In addition, the VIX can not account for sudden, surprising occasions which will trigger sturdy market reactions. Historically, it has all the time been the case that the VIX couldn’t predict a backside.
Key occasions are determinants of when a backside is reached. However, because the VIX is calculated based mostly on expectations, it can’t be a key to detecting a change in pattern because of sudden occasions out there.
And the all overshadowing occasion would be the subsequent FOMC assembly of the US central financial institution on December 14, when the FED will resolve on its additional rate of interest coverage. Remarkably, the assembly will embrace a “abstract of financial projections”.
But even earlier than that, there are two extraordinarily necessary knowledge that make predictions about how the FED will act.
While the brand new inflation knowledge within the type of the buyer worth index (CPI) can be revealed on December 13, the producer worth index (PPI) will already be revealed on Friday, December 9.
This will already present an perception into how the CPI knowledge would possibly prove. This is as a result of the PPI serves as a number one indicator for the buyer worth index.
When producers face enter inflation, will increase of their manufacturing prices are handed on to retailers and shoppers. Thus, the PPI might be trend-setting.
If the PPI and CPI proceed to fall, at greatest greater than anticipated, the possibilities of a Santa rally for Bitcoin are fairly excessive.