As NewsBTC reported, the VIX experienced a trend reversal last Friday that could also be significant for Bitcoin.
The VIX Volatility Index shows traders the expected fluctuation range of the S&P 500. Notably, there is an inverse correlation between the VIX Index and the S&P 500. A rising VIX index usually means falling prices for the S&P 500, and vice versa.
Rising VIX Threatens Bitcoin Bulls
The VIX fell below 19 on Friday, a figure that has been very significant over the past year.
In August, the last time the VIX was this low, it then rose above 34, sending the S&P 500 down 15%. Bitcoin also experienced a significant downtrend driven by its correlation with the S&P 500.
On Monday, BTC bounced off the horizontal resistance at USD 17,400 and dropped below USD 17,000 as VIX started its trend reversal with a great open market.
Yesterday, however, Bitcoin bulls initially seemed to have the upper hand. While the S&P saw another 1.4% fall, BTC price remained relatively stable at $17,000.
However, in the past few hours, BTC registered a retracement of around 2% and USD 350. At one point, BTC fell to $16,691 after the VIX continued its upward trend, rising to a level of 22.46. At the time of writing, Bitcoin’s price was at $16,828.
Investors should pay attention to the VIX. If the VIX sees another rise today, the BTC bulls could lose steam. Then the $16,600 and $16,300 support zones will be key.
Will Friday Foreshadow Bitcoin?
So given Bitcoin’s high correlation with the S&P 500, another shot could be imminent. However, the VIX should not be used as the sole indicator. The VIX is based on expectations based on past events.
In addition, the VIX cannot account for sudden, unexpected events that can trigger strong market reactions. Historically, the VIX has always failed to predict a bottom.
Key events are decisive for reaching a bottom. However, since the VIX is calculated based on expectations, it cannot be a key to detecting a change in trend due to sudden events in the market.
And the overshadowing event will be next FOMC meeting of the US central bank on December 14, when the Fed will decide on its further interest rate policy. Remarkably, the meeting will include a “summary of economic projections”.
But even before that, there are two extremely important pieces of data that predict how the FED will act.
While the new inflation data in the form of the consumer price index (CPI) will be published on December 13, the producer price index (PPI) will be published as early as Friday, December 9.
This already gives insight into what the CPI data can look like. The PPI serves as the leading indicator for the consumer price index.
When manufacturers experience input inflation, increases in their production costs are passed on to retailers and consumers. So the PPI could be leading.
If the PPI and CPI continue to fall, at best more than expected, the probability of a Santa’s rally for Bitcoin are quite high.
