Bitcoin (BTC) and the S&P 500 are currently tracking the rising volatility in Treasury yields, which is causing a shift in market dynamics. This shift has led to a rapid change in sentiment, turning bearish in just 24 hours.
Both assets seem to be forming a head-and-shoulders topping pattern, signaling a potential bearish reversal. This pattern aligns with a shift in the market conditions that previously fueled the post-election rally in both Bitcoin and the S&P 500.
The catalyst behind this change is the MOVE index, also known as the Merrill Lynch Option Volatility Estimate Index. This index measures expected 30-day volatility in the U.S. Treasury bond market, and it plays a significant role in shaping financial conditions. As the second-largest financial market after currencies, volatility in Treasury notes can tighten financial conditions, triggering risk aversion throughout the broader markets.
Unfortunately for crypto investors, the MOVE index has been rising. After bottoming out at 82 in mid-December, it climbed to 102.78 on Tuesday, driven by hotter-than-expected manufacturing data that indicated a strong economy and persistent inflation. This led to higher Treasury yields, with the 30-year bond yield reaching 4.92%—its highest level since November 23—and the 10-year yield rising to 4.68%, its highest point since May.
This increase in yields coincided with a 5% drop in Bitcoin, which fell to $96,900, and a 1% decline in the S&P 500. The post-election rally in both assets, which had gained momentum in November, began to lose steam in mid-December as the MOVE index started to rise. The index had initially plummeted following Donald Trump’s victory in the November election, easing financial conditions and fueling the year-end rally in risk assets. However, the shift in the MOVE index has now put downward pressure on both Bitcoin and the S&P 500.
The key takeaway is that bonds are driving the broader market narrative, with the Treasury market playing a crucial role. For a bullish turnaround in risk assets, including Bitcoin, the Treasury market must stabilize. Given the current upward trend in the MOVE index, the probability of Bitcoin and the S&P 500 completing their head-and-shoulders bearish reversal patterns appears to be increasing.
