Thomas Lee,Why The VIX Could Predict A Bitcoin And Crypto Rally managing partner and head of research at Fundstrat Global Advisors, outlined in a recent CNBC interview 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.

VIX was created to quantify market expectations of volatility for the S&P 500. In doing so, the VIX is future oriented, meaning that it only shows the implied volatility for the next 30 days. The rule of thumb is: if the VIX increases, the S&P 500 is likely to decrease, and if the VIX value decreases, the S&P 500 is likely to remain stable or increase.Why The VIX Could Predict A Bitcoin And Crypto Rally

Fundstrat Analyst Expects A 20% S&P 500 Rally In 2023

Lee expects a 20% rally for the S&P 500 this year. Why? According to the chief analyst, inflation surprised the Fed on the downside last year. This year,Why The VIX Could Predict A Bitcoin And Crypto Rally it will be the other way around. Inflation will fall faster than the Fed recently forecasted.

This will have a decisive impact on the VIX, which will decline in value. “The bond market volatility is below its 200 day [average]. If that happens to the VIX, we would be at 17,” Lee claims and continues to say that “since the 1950s, following a negative year, if the VIX is lower on average than the prior year, we are up an average of 22%. So I think we are set up for a 20% yearWhy The VIX Could Predict A Bitcoin And Crypto Rally.”

According to the Fundstrat analyst, Thursday will be very telling. If the core CPI is again below consensus, that means the original Fed forecast of 4.8% for PCE is 60 basis points too high.Why The VIX Could Predict A Bitcoin And Crypto Rally

“And that means inflation is undershooting by a huge margin. The bond market is gonna push the Fed to say that February might be the last hike and after that it cuts,” Lee asserts.Why The VIX Could Predict A Bitcoin And Crypto Rally

Why @fundstrat says stocks could rally more than 20% this year, despite the latest #Fedspeak pic.twitter.com/fToibbPp2W

— CNBCOvertime (@CNBCOvertime) January 9, 2023

What Does This Matter For Bitcoin?Why The VIX Could Predict A Bitcoin And Crypto Rally

For bitcoin, the prediction of Thomas Lee is interesting in that the price had a high correlation with the S&P 500 (with a higher beta) over the past year, unless there were crypto-intrinsic shocks like the collapse of FTX or Terra Luna. This meant that the bitcoin price behaved very similarly to the S&P 500, but was more volatile in both directions in response to changes in the market.Why The VIX Could Predict A Bitcoin And Crypto Rally

To that extent, the VIX (currently standing at 22) can also be used as a sentiment barometer for bitcoin. If Lee’s predicted drop in the VIX to 17 actually occurs – either as a result of positive CPI data or a pivot by the U.S. Federal Reserve – BTC could see a rally towards $20,000.Why The VIX Could Predict A Bitcoin And Crypto Rally

As recently as November, Lee said he was sticking to his bitcoin price forecast of $200,000, even if the current market is negative. According to him, the BTC price will rise in tandem with the S&P 500 if there are no more scams and bankruptcies of key players in the crypto industry.Why The VIX Could Predict A Bitcoin And Crypto Rally

At press time, the bitcoin price was showing a slight uptrend over the past week, trading at $17,296.

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