September 27, 2020

VIX Raising “Red Flag” On Stocks, Could Be Bearish For Bitcoin

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Analysts rely on a variety of tools to tip them off about coming price action, with some offering better results than others. A top and bottom-sniping tool used to call the 2007 top in the stock market, is once again raising a red flag. Here’s why this could also be bearish for Bitcoin and the rest of the cryptocurrency market.

Stock Market Raises “Red Flag” Warning Sign, Analyst Warns Of “Impending Reversal”

The stock market pumped today on Jerome Powell’s monetary policy speech, while Bitcoin price tanked.

The S&P 500 set yet another daily all-time high even as the economy struggles, unemployment soars, the GDP shrinks, and the pandemic rages on.

Most signs point to the stock market being in a bubble that is ready to burst. Yet stimulus money has kept equities climbing to outrageous valuations.

Related Reading | Why Bitcoin Ditching Stock Market Correlation For Gold Is Bullish for BTC

But as the stock market sets a new high, it has created a bearish divergence with the VIX volatility index, which one former hedge fund and investor, Jesse Felder, claims signals “an impending reversal.”

This reversal signal was the key to timing the 2007 top ahead of the Great Recession, and the 2009 bottom when things finally began to turn around.

The signal is back, and it could end up hurting Bitcoin and the rest of crypto as much as it crushes the stock market.

Volatility Index (VIX) Impact On Bitcoin (BTCUSD) & S&P 500 (SPX) | Source: TradingView

Bitcoin Bulls Beware: Crypto Collapsed The Last Time VIX Crushed Stocks

The crypto bubble is long in the past, but the greater financial market bubble continues to inflate.

The stock market has already recovered from its Black Thursday low completely and set a new all-time high on most major indices.

That day, crypto suddenly became tightly correlated to stocks, and Bitcoin flash crashed by over 50% alongside the S&P 500, gold, and nearly every other asset.

The correlation with Bitcoin turned from stocks to gold, helping propel the entire crypto market cap towards its first sustainable recovery. But that now could be at risk, thanks to a bearish divergence on the VIX index.

Related Reading | This Tool Has Called Nearly Every Bitcoin Top, And It Just Triggered Again

According to the Felder Report author Jesse Felder, the “VIX warning signal is flashing again as it did earlier this year.” “In short, the options market is sending a message that volatility going forward is likely to be greater than the stock market currently implies,” he added. 

The VIX measures the expected volatility of the S&P 500 but can have an enormous influence on total market volatility. And this is why the same signal also poses a threat to Bitcoin.