How the VIX Could Pave the Way Higher for Bitcoin and Risk-On Assets

2020-9-15 18:03

Bitcoin could be at a major turning point in its lifecycle, but the risk hanging over the global markets may get in the way. According to the VIX, a measure of anticipated market volatility has been elevated all throughout 2020 to the highest point since the Great Recession.

The metric could lose a key support level that would let high-risk assets like Bitcoin, stocks, and other crypto assets to fly. If support holds, however, things could get extremely dangerous leading into the 2020 presidential election. 

Election, Inflation, Recession, and a Pandemic: Is It the Right Time to Take on Risk?

Markets have been irrational ever since stimulus efforts began pumping the money supply. The stock market went from the worst collapse in years, to one of the greatest rallies on record.

RELATED READING | WHAT TO EXPECT FROM BITCOIN FOLLOWING THIS WEEK’S FED MEETING

Bitcoin crashed from $10,000 to $4,000, and is already back well above the critical resistance level and is currently attempting to flip it to support.

The cryptocurrency’s success in doing so could hinge on another completely unrelated chart losing important support., That chart is the CBOE VIX – a volatility index measuring the expected volatility in the S&P 500.

CBOE VIX Volatility Index Retesting Support  | Source: TradingView

It is currently hovering at a level that, in the past, breaching above led to a rollercoaster ride across markets. Falling back below it could bring some much-needed calmness to the world of finance.

A fall even deeper back into the “teens would be mega bullish for all risk assets” claims the CEO and Founder of the Trading Dojo. But why?

Bitcoin Rallies When VIX Reveals Risk is at Its Lowest

Taking the VIX index and adding it to a BTCUSD price chart reveals some interesting correlations with Bitcoin throughout its short price history.

Bitcoin appears to pump each time the VIX experiences a bout of tranquility rather than the turbulence we’ve seen in 2020 thus far.

BTCUSD Bull Rallies Conicide With VIX Calm  | Source: TradingView

Each time the VIX has fallen into the teens, as the analyst says, Bitcoin has rallied, and the rest of the high-risk crypto market followed its lead. The most recent period of calm led to the top at $14,000, and before that was the crypto asset’s all-time high at $20,000. Before that, the VIX easy street paved the way for Bitcoin’s then-record at $1,200.

RELATED READING | WHY LACK OF LEVERAGE COULD KEEP BITCOIN AND STOCKS CLIMBING DESPITE SELLOFF

A fall back below 20 and into the teens could be exactly what Bitcoin needs for its bull run breakout. However, if VIX holds the support pictured in the first chart above, another massive crash is possible.

Whatever the case may be, the VIX could provide clues as to what happens next, and investors should be watching the metric closely to find out.

Featured image from DepositPhotos, Charts from TradingView

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