What to know:
In a nutshell, the cryptocurrency market is notorious for its swift changes, and if there’s any proof needed, simply observe how the general opinion shifted from bullish to bearish within a single day.
It’s important to note that this unexpected change isn’t happening without cause. Bitcoin (BTC) and the S&P 500 are showing signs of a head-and-shoulders top formation, which aligns with a shift in market dynamics that drove the post-election increase in both assets.
We’re focusing on the MOVE index, also known as the Merrill Lynch Option Volatility Estimate Index, that gauges the anticipated volatility in the U.S. Treasury bond market over the next 30 days.
In simple terms, when there’s instability in the bond market, particularly with Treasury notes (which is the second largest financial market globally after currencies), it tends to make financial situations more stringent. This instability can, in turn, cause investors to become more cautious and risk-averse across all financial sectors.
Unfortunately for cryptocurrency optimists, the MOVE index has been increasing, bottoming out around 82 in mid-December, as per TradingView’s charting data. Yesterday, the index reached 102.78 due to stronger-than-expected manufacturing figures suggesting a thriving economy and ongoing inflation, which led to an increase in Treasury yields. More specifically, the yield on the 30-year note reached 4.92%, its highest since November 23, and the 10-year yield went up to 4.68%, marking a high not seen since May.
On Tuesday, Bitcoin dipped 5% to reach $96,900, and the S&P 500 dropped by more than 1%. The upward trend for both assets following the U.S. election began to slow down around mid-December, which was around the same time that the MOVE index hit its lowest point, as illustrated below.
After Donald Trump won the U.S. election on November 5, the MOVE index fell, improving financial conditions for risky assets and resulting in significant growth throughout the rest of the year. Nevertheless, both Bitcoin (BTC) and the S&P 500 encountered difficulties when the MOVE index started changing in mid-December.
The main point is that bonds appear to rule over the wider financial markets. For a positive change in risky investments, it seems essential that the bond market, specifically the U.S. Treasury market, should find stability.
At the moment, as the MOVE index climbs higher, it seems quite probable that both Bitcoin and the S&P 500 will finish forming their bearish head-and-shoulders reversal patterns.
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2025-01-08 11:37