Why Will The CBOE VIX Predict A 20% Crypto Rally?

In a recent CNBC interview, Thomas Lee, managing partner and head of research at Fundstrat Global Advisors, explained why the VIX, a real-time volatility index from the Chicago Board Options Exchange (CBOE), will become an important indicator for equity markets and possibly Bitcoin in the coming months.

The VIX index was established to gauge market volatility estimates for the S&P 500. As a result, the VIX is future-oriented, displaying only implied volatility for the next 30 days. The rule of thumb is that if the VIX rises, the S&P 500 will likely fall, and if the VIX falls, the S&P 500 will likely remain flat or rise.

Fundstrat analyst predicts a 20% rise in the S&P 500 in 2023.

This will have a significant impact on the VIX, which will fall in value. “Bond market volatility is lower than its 200-day [average]. If that happens to the VIX, we would be at 17,” Lee asserts and proceeds to state that “during the 1950s, following a bad year, if the VIX is lower on average than the prior year, we are up an average of 22%. So I believe we are on track for a 20% year.”

Thursday, according to the Fundstrat analyst, will be pivotal. If core CPI falls below consensus once more, the original Fed prediction for PCE of 4.8% is 60 basis points too high.

“This suggests that inflation is significantly undershooting. “The bond market will pressure the Fed to imply that February may be the last boost, and then it will cut,” Lee predicts.

What Does It Mean for Bitcoin?

For bitcoin, Thomas Lee’s prediction is intriguing because the price has had a good correlation with the S&P 500 (with a greater beta) during the last year, unless there have been crypto-intrinsic shocks like as the collapse of FTX or Terra Luna. As a result, the bitcoin price behaved fairly similarly to the S&P 500, but was more volatile in both directions in response to market moves.

To that extent, the VIX (now at 22) can be utilized as a bitcoin sentiment barometer. If Lee’s forecast decline in the VIX to 17 occurs, whether as a result of strong CPI data or a pivot by the US Federal Reserve, BTC may rise above $20,000.

Related: A rough year for cryptocurrency

Even if the market is currently bearish, Lee stated in November that he would maintain his $200,000 bitcoin price projection. According to him, if there are no more cryptocurrency frauds or bankruptcies, the BTC price will grow in lockstep with the S&P 500.

At press time, the bitcoin price was trading at $17,296 after a small rise during the previous week.

Featured image from Art Rachen / Unsplash, Chart from TradingView.com 

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