Key Takeaways

• Markets reacted negatively to the Fed's 25 basis point cut and the hawkish outlook, leading Bitcoin to drop below $100,000 and U.S. equities to decline by 3%.
• The CBOE Volatility Index (VIX) saw a remarkable spike of 74%, the largest daily increase since February 5, 2018.
• Historical trends indicate that major surges in the VIX have generally been followed by robust recoveries in Bitcoin and the S&P 500.

Context of Recent Market Movements

On December 18, a notable day in market history, panic unfolded following the Federal Reserve's decision to cut interest rates by 25 basis points, coupled with a hawkish forecast from Jerome Powell. Bitcoin briefly dipped below $100,000, while U.S. equities suffered a 3% downturn. The dollar index soared to a two-year high of 108, exerting pressure on global currencies.

The CBOE VIX, essentially a measure of market anxiety and volatility for the upcoming month, jumped a staggering 74%, marking its second-largest day-to-day increase ever. Traditionally, these spikes in the VIX correlate with local price bottoms for assets like Bitcoin and indices like the S&P 500.

A comparison of the top three most significant single-day changes in the VIX reveals:

1. Feb 5, 2018: VIX surged by 116%, Bitcoin fell by 16% to $6,891, which marked a local bottom, recovering to over $11,000 by February 20.
2. Dec 18, 2024: The recent spike of 74% on the VIX.
3. Aug 5, 2024: VIX increased by 65%, with Bitcoin declining 6% to approximately $54,000, before ascending past $64,000 by August 23.

Data from Charlie Bilello highlights that similar trends have consistently unfolded in the S&P 500 over the years. As of now, Bitcoin trades slightly above $102,000, with S&P 500 futures indicating a potential positive opening, gaining 0.37%.