14 Mar 2022

Sustained fear in traditional markets

The VIX index remains at elevated levels, illustrating that the fear in the broad financial markets is high.
Source: Tradingview
Throughout 2021, it was clear that bitcoin was treated as a risk asset, mostly seeing substantial sell-offs during spikes in the VIX index.The VIX index measures the stock market’s expectation of volatility based on S&P 500 index options and is often referred to as the fear index.In 2022, the VIX index has behaved very differently from what we saw in 2021. Throughout 2021, the VIX index tended to see brief spikes caused by temporary shocks before quickly returning back to around $15. In 2022 however, the VIX has remained at sustained elevated levels, suggesting a sustained demand to hedge in traditional markets.The elevated VIX is caused by several factors. The initial primary driver of the VIX increase can be ascribed to hawkish central banks as quantitative easing is coming to an end in the U.S., and several rate hikes are expected in the coming years.Russia's invasion of Ukraine has further contributed to elevating the VIX, adding more complexity to the market, leading commodities to soar while the implications of the sanctions further enlarge the uncertainty in the market. This caused the VIX to close at a 14-month high on March 7th.The high fear in traditional markets is likely one of the key contributors to bitcoin’s poor performance so far this year.
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