Van Straten: VIX’s Historic Jump Suggests Bitcoin Has Reached a Local Bottom

On December 18, 2024, the financial markets experienced a sharp shock following the Federal Reserve’s 25 basis point rate cut and hawkish remarks by Chairman Jerome Powell, causing a wave of panic across global assets.

Bitcoin (BTC) briefly fell below the $100,000 mark, U.S. stocks dropped around 3%, and the dollar index (DXY) surged to a two-year high of 108, further exerting pressure on international currencies. However, the most notable movement came from the CBOE Volatility Index (VIX), which skyrocketed by 74%, marking the second-largest one-day increase in the VIX’s history, trailing only the spike on February 5, 2018. The VIX, known as Wall Street’s “fear gauge,” reflects heightened market anxiety and expected volatility in the short term.

Historically, significant VIX surges have often been a signal of local bottoms in both Bitcoin and the S&P 500. For instance, on February 5, 2018, the VIX spiked by 116%, as Bitcoin plummeted 16% to $6,891, which turned out to be a local bottom, with prices rebounding to over $11,000 by February 20.

The December 18 spike now ranks as the second-highest one-day VIX jump. The third-largest occurred on August 5, 2024, when the VIX surged by 65% amid the Yen carry trade unwind, causing Bitcoin to drop by 6% to a local bottom of $54,000, before climbing back above $64,000 later in the month.

These sharp VIX surges have been a reliable indicator of market reversals in the past, with the S&P 500 showing similar patterns of recovery after VIX spikes, as detailed by market strategist Charlie Bilello.

At the time of writing, Bitcoin was slightly recovering, trading at $102,000, and the S&P 500 futures pointed to a potential positive open, up by 0.37%. The question remains: will history repeat itself and lead to a swift rebound in the coming days?