The market is showing a risk-on attitude, with stocks driving key cryptocurrencies upward, although Wall Street’s fear indicator, the VIX, is causing some anxiety.
On Monday, the S&P 500, Wall Street’s benchmark index, achieved a record high for the fourth day in a row, hitting 6,519 points. The tech-centric Nasdaq index also reached all-time highs, while the Dow Jones hovered close to its peak from Thursday.
Equities increased, ignoring the negative manufacturing survey from September, as bond yields declined in expectation of a 25-basis-point Fed rate cut on Wednesday. Fed funds futures suggest that traders anticipate rates falling to 3% from the current 4.25% within the next year.
However, bitcoin showed uncertain movement, fluctuating between $114,000 and $117,000, producing a Doji candle. At the time of writing, it was trading at $115,860, continuing a lackluster pattern below the record highs above $124,000 reached in August.
This stagnant price behavior is likely attributed to long-term holders realizing profits, counteracting the bullish momentum from spot ETF investments.
Other significant cryptocurrencies like ether (ETH), XRP and dogecoin also lost momentum.
Ethereum’s ether token declined from nearly $4,800 to $4,500 within three days after reaching its all-time highs above $5,000 last month. This drop is puzzling, as ether, often referred to as the internet bond due to its staking yields, is poised to appeal to investors with the upcoming Fed rate cuts.
The payments-centric XRP has receded to $3.00, which shows a weak follow-through from the bullish breakout of the descending triangle confirmed last week. In the meantime, dogecoin, the preeminent meme token, plummeted to 26.7 cents from 30.7 cents amid whale selling reports.
Analysts suggest that a 25-basis-point rate cut could reignite a gradual increase in BTC, while a surprising 50 bps cut could lead stocks, crypto, and gold to surge.
Monitor VIX and BTC volatility indices
On Monday, the rise in U.S. stocks was accompanied by an increase in the VIX index, which reflects the options-based anticipated volatility in the S&P 500 over the coming 30 days.
The VIX climbed over 6% to 15.68 points. While remaining at multi-month lows, the uptick on Tuesday merits attention for two reasons: Firstly, historically, the VIX and S&P 500 have exhibited opposing movements, evidenced by a near -90 correlation over a 90-day period.
Secondly, a breakdown in this negative correlation typically serves as a precursor to corrections, as indicated by the quant-driven market intelligence platform Menthor Q on X.
“SPX rose with the VIX today. This often indicates stretched upside positioning, with traders acquiring calls or hedging negative performance with puts, leaving markets susceptible,” stated Menthor Q.
The VIX is driven by options demand, and the recent rise in the index may be due to traders seeking S&P 500 puts or protective downside options.
This could suggest that market participants foresee a correction following the anticipated 25-basis-point Fed rate cut on Wednesday.
BTC implied volatility increase
Volmex’s bitcoin implied volatility index, which reflects expected price fluctuations over 30 days, also saw a 3% rise on Monday, continuing its positive correlation with the VIX.
It’s important to note that BTC’s historical positive correlation with implied volatility indices has flipped negative since the spot ETFs launched in January last year, and even more so since President Trump’s electoral victory in November of last year.
