On Wednesday, December 18, markets experienced a dramatic reaction following a 25-basis-point rate cut by the Federal Reserve and a hawkish outlook from Fed Chair Jerome Powell, triggering widespread panic.
Bitcoin (BTC) briefly dipped below $100,000, U.S. equities fell by about 3%, and the dollar index (DXY) surged to a two-year high of 108, putting pressure on global currencies. However, the most notable movement came from the CBOE Volatility Index (VIX), which skyrocketed by 74%, marking the largest one-day increase since February 5, 2018. This was also the second-largest spike in its history. The VIX measures market fear and expected volatility for the next 30 days.
Historically, sharp spikes in the VIX have often signaled local bottoms for both Bitcoin and the S&P 500. For example, on February 5, 2018, the VIX surged by 116%, coinciding with a 16% drop in Bitcoin to $6,891, which marked a local bottom. By February 20, Bitcoin had rebounded to over $11,000.
The VIX’s December 18 surge of 74% is the second-largest in its history. The third-largest increase occurred on August 5, 2024, when the VIX jumped 65% during the Yen carry trade unwind. On that day, Bitcoin dropped 6% to around $54,000, only to rebound to over $64,000 by August 23.
This pattern of volatility has similarly impacted the S&P 500, with past data showing that large spikes in the VIX often signal market bottoms, as noted by Charlie Bilello, chief market strategist at Creative Planning.
At press time, Bitcoin was trading above $102,000, and S&P 500 futures pointed to a positive open, showing a 0.37% gain. Could history be repeating itself? Time will tell.
