Continued Rise in VIX Doom Signals for Bitcoin; But Friday will be crucial

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As NewsBTC reported, the VIX experienced a trend reversal last Friday, which could also be important for Bitcoin.

The VIX Volatility Index shows traders the expected fluctuation range of the S&P 500. Remarkably, there is an inverse correlation between the VIX Index and the S&P 500. A rising VIX Index generally means falling S&P 500 prices. , and vice versa.

Rising VIX Threatens Bitcoin Bulls

The VIX fell below the 19 level on Friday, a mark that has been very significant over the past year.

In August, the last time the VIX was this low, it then rose above 34, dragging the S&P 500 down 15%. Bitcoin also saw a significant downtrend, driven by its correlation with the S&P 500.

On Monday, BTC bounced off horizontal resistance at $17,400 and fell below $17,000 as VIX began its trend reversal with a stellar market open.

VIX. Source: Trading View

Yesterday, however, Bitcoin bulls initially seemed to have the upper hand. While the S&P plunged another 1.4%, the price of BTC remained relatively stable at $17,000.

However, in the past few hours, BTC recorded a retracement of around 2% and $350. At one point, BTC fell to $16,691 after the VIX continued its uptrend and hit a level of 22.46. As of press time, Bitcoin price stands at $16,828.

Investors should pay attention to the VIX. If the VIX sees a further rise today, BTC bulls could run out of steam. Then the support areas at $16,600 and $16,300 are going to be key.

BTC price, 4 hour chart. Source: Will TradingView provide a foreshadowing for Bitcoin on Friday?

So, given Bitcoin’s strong correlation to the S&P 500, another pullback could be imminent. However, the VIX should not be used as the only indicator. The VIX relies on expectations based on past events.

Additionally, the VIX cannot take into account sudden and unexpected events that may cause strong market reactions. Historically, it has always been true that the VIX cannot predict a bottom.

Key events are determinants of when a bottom is reached. 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 most significant event will be the next meeting of the US central bank’s FOMC on December 14, when the FED will decide on its new 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 new inflation data in the form of the Consumer Price Index (CPI) will be released on December 13, the Producer Price Index (PPI) will already be released on Friday, December 9.

This will already provide a glimpse of how the CPI data might turn out. Indeed, the PPI serves as a leading indicator for the consumer price index.

When manufacturers face input inflation, increases in their cost of production are passed on to retailers and consumers. So, the PPI could be driving the trend.

If the PPI and CPI continue to fall, at best more than expected, the chances of a Santa Claus rally for Bitcoin are quite high.

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