The Daily Dive #138 - Bitcoin Macro Correlations
Volatility Spikes
Today’s Daily Dive will touch on some of the recent macro trends and correlations in the BTC market. If you haven’t read this recent thread on the bitcoin market, check it out.
In Friday’s Daily Dive, bitcoin below $40,000, we noted to keep an eye on the VIX, as risk assets continued to sell off in unison over the following month.
“If things continue to get ugly in equity markets, keep an eye on the VIX, which is a volatility index for the S&P 500. If stocks continue to drop, it will likely lead to continued weakness in bitcoin. The real question is what is the threshold where bitcoin derivatives markets face cascading liquidations, which is what worsened the sell-off in March of 2020.”
Just a mere three days later, U.S. markets opened down big and bitcoin was trading near $33,000 as volatility exploded, with the VIX touching as high as 38 before a massive reversal occurred:
As bitcoin matured as a global macroeconomic asset, it increased its correlation to equities and sold off during moves higher in the VIX (risk off moments). Here are some highlighted moments over the last two years where this has occurred:
We also have monitored the market’s expectations for the Federal Reserve Board through the Eurodollar futures market, a futures market on the expected Fed funds rate. Expectations fell today as equity markets tanked, which was an implicit nod to the infamous “Fed put.”
In Friday’s Daily Dive, we also covered how during the liquidity crises of 2020, bitcoin bottomed first before equities, and although in no way are we comparing today’s price action alone to a once-in-a-generation-type black swan event across financial markets, bitcoin did bottom before equities, currently trading 10.65% above today’s low.
All eyes are on Wednesday’s Federal Open Market Committee meeting for expectations on futures rate hikes.
The reality for the time being is that bitcoin’s price action is tied to equity market performance over the short term. This won't always be the case during bitcoin’s ongoing monetization phase, but increasingly the asset is being treated as a pure reflection of the global “everything bubble” and a check on the central banks that have enabled it.
Luke Gromen reiterated something very similar this afternoon:
Tomorrow’s Daily Dive will focus more on on-chain activity, and expectations heading into Wednesday’s FOMC meeting.
it's a wild time right now. hold on to your butts.