Thomas Lee, managing partner and head of research at Fundstrat Global Advisors, outlined in a recent CNBC interview why the VIX – the real-time volatility index of the Chicago Board Options Exchange (CBOE) – will be an important indicator for the equity market and may be. Bitcoin in the coming months.
The VIX is created to calculate the market’s expectations of volatility for the S&P 500. In doing so, the VIX is future-oriented, meaning it only shows the implied volatility over 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.
Fundstrat analysts expect a 20% S&P 500 rally in 2023
Lee expects a 20% rally for the S&P 500 this year. Why? According to leading analysts, inflation surprised The Fed on the downside last year. This year, it will be the opposite. Inflation will fall faster than the Fed forecast recently.
This will have a decisive impact on the VIX, which will reduce its value. “Bond market volatility is less than 200 days [average]. If it happens in the VIX, we will be 17, “Lee claims and continues to say that” since the 1950s, after a negative year, if the VIX is on average lower than the previous year, we are up an average of 22 %. So I think we are set for a 20% year.
According to Fundstrat analysts, Thursday will speak volumes. If core CPI is again below consensus, that means the Fed’s original forecast of 4.8% for PCE is 60 basis points too high.
“And that means inflation is low by a large margin. The bond market will push the Fed to say that February could be the last hike and after that it will cut,” Lee said.
why @fundstrat said the stock may rally more than 20% this year, despite the latest #Fedspeak pic.twitter.com/fToibbPp2W
— CNBCOvertime (@CNBCOvertime) January 9, 2023
Is This Important To Bitcoin?
For bitcoin, Thomas Lee’s prediction is interesting because the price has a high correlation with the S&P 500 (with a higher beta) in the past year, unless there are crypto-intrinsic surprises like the collapse of FTX or Terra Luna. This means that the price of bitcoin behaves very similarly to the S&P 500, but is more volatile in both directions in response to changes in the market.
Until then, the VIX (currently standing at 22) can also be used as a sentiment barometer for bitcoin. If Lee’s prediction of a drop in the VIX to 17 actually happens – as a result of positive CPI data or a pivot by the US Federal Reserve – BTC could see a rally towards $20,000.
As recently as November, Lee said he was sticking with his $200,000 bitcoin price forecast, even though the market is currently negative. According to him, the price of BTC will rise together with the S&P 500 if there are no more frauds and bankruptcies of key players in the crypto industry.
At press time, bitcoin prices showed a slight upward trend over the past week, trading at $17,296.
Featured images from Art Rachen / Unsplash, Charts from TradingView.com