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Why The VIX Could Predict A 20% Bitcoin And Crypto Rally

Jake Simmons by Jake Simmons
5 months ago
in Bitcoin
Reading Time: 3 mins read

Thomas Lee, managing partner and head of research at Fundstrat Global Advisors, outlined in a recent CNBC interview why the VIX – a real-time volatility index from the Chicago Board Options Exchange (CBOE) – will become an important indicator for equity markets and possibly Bitcoin in the coming months.

VIX was created to quantify market expectations of volatility for the S&P 500. In doing so, the VIX is future oriented, meaning that it only shows the implied volatility for the next 30 days. The rule of thumb is: if the VIX increases, the S&P 500 is likely to decrease, and if the VIX value decreases, the S&P 500 is likely to remain stable or increase.

Fundstrat Analyst Expects A 20% S&P 500 Rally In 2023

Lee expects a 20% rally for the S&P 500 this year. Why? According to the chief analyst, inflation surprised the Fed on the downside last year. This year, it will be the other way around. Inflation will fall faster than the Fed recently forecasted.

This will have a decisive impact on the VIX, which will decline in value. “The bond market volatility is below its 200 day [average]. If that happens to the VIX, we would be at 17,” Lee claims and continues to say that “since the 1950s, following a negative year, if the VIX is lower on average than the prior year, we are up an average of 22%. So I think we are set up for a 20% year.”

Related Reading: Bitcoin On-Chain Data Shows Weak Baseline For 2023: Report

According to the Fundstrat analyst, Thursday will be very telling. If the core CPI is again below consensus, that means the original Fed forecast of 4.8% for PCE is 60 basis points too high.

“And that means inflation is undershooting by a huge margin. The bond market is gonna push the Fed to say that February might be the last hike and after that it cuts,” Lee asserts.

Why @fundstrat says stocks could rally more than 20% this year, despite the latest #Fedspeak pic.twitter.com/fToibbPp2W

— CNBCOvertime (@CNBCOvertime) January 9, 2023

What Does This Matter For Bitcoin?

For bitcoin, the prediction of Thomas Lee is interesting in that the price had a high correlation with the S&P 500 (with a higher beta) over the past year, unless there were crypto-intrinsic shocks like the collapse of FTX or Terra Luna. This meant that the bitcoin price behaved very similarly to the S&P 500, but was more volatile in both directions in response to changes in the market.

Related Reading: Why Justin Sun’s Stablecoin USDD Is Struggling To Maintain Its Dollar Peg

To that extent, the VIX (currently standing at 22) can also be used as a sentiment barometer for bitcoin. If Lee’s predicted drop in the VIX to 17 actually occurs – either as a result of positive CPI data or a pivot by the U.S. Federal Reserve – BTC could see a rally towards $20,000.

As recently as November, Lee said he was sticking to his bitcoin price forecast of $200,000, even if the current market is negative. According to him, the BTC price will rise in tandem with the S&P 500 if there are no more scams and bankruptcies of key players in the crypto industry.

At press time, the bitcoin price was showing a slight uptrend over the past week, trading at $17,296.

Bitcoin BTC/USD
Bitcoin grinding up, 1-day char | Source: BTCUSD on TradingView.com

Featured image from Art Rachen / Unsplash, Chart from TradingView.com 

Tags: bitcoinbtcvix
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Jake Simmons

Jake Simmons

Jake Simmons has been a Bitcoin enthusiast since 2016. Ever since he heard about Bitcoin, he has been studying the topic every day and trying to share his knowledge with others. His goal is to contribute to Bitcoin's financial revolution, which will replace the fiat money system. Besides BTC and crypto, Jake studied Business Informatics at a university. After graduation in 2017, he has been working in the blockchain and crypto sector. You can follow Jake on Twitter at @realJakeSimmons.

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