By Omkar Godbole | Edited by Parikshit Mishra

Updated Jan 8, 2025, 8:55 a.m. UTC | Published Jan 8, 2025, 8:27 a.m. UTC

A pivotal market dynamic is changing, posing challenges for risk assets. (cocoparisienne/Pixabay)

What We Need to Know:

The MOVE Index, which gauges volatility in the U.S. Treasury market, is on the rise.

This could lead to tighter financial conditions, exacerbating losses in Bitcoin and the S&P 500.

The index hit its lowest in mid-December, coinciding with the exhaustion of the uptrend in Bitcoin and stocks.

The crypto market is known for its rapid shifts, and if you doubt that, just observe how sentiment has turned bearish in just 24 hours.

This sudden shift is not without cause. Bitcoin (BTC) and the S&P 500 are forming a head-and-shoulders top pattern, aligning with a change in the market dynamic that fueled the post-election surge in both assets.

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We're talking specifically about the MOVE Index, or the Merrill Lynch Option Volatility Estimate Index, which measures expected 30-day volatility in the U.S. Treasury bond market.

As the world's second-largest financial market after forex, volatility in the fixed-income market, particularly in Treasury notes, often leads to tighter financial conditions. This can trigger risk aversion across various segments of financial markets.

Unfortunately for crypto enthusiasts, the MOVE Index is rising, having reached a low of 82 in mid-December, according to the charting platform TradingView. On Tuesday, the index rose to 102.78 after stronger-than-expected manufacturing data signaled a robust economy and persistent inflation, pushing Treasury yields higher. Specifically, the yield on the 30-year note increased to 4.92%, the highest since November 23, and the 10-year yield rose to 4.68%, the highest since May.

Notably, BTC dropped 5% to $96,900 on Tuesday, while the S&P 500 fell over 1%. The post-U.S. election uptrend for both assets lost momentum in mid-December, coinciding with the bottom of the MOVE Index, as shown below.

MOVE, BTC, and S&P 500. (Trading$View/CoinDesk)

The MOVE Index plummeted following Donald Trump's victory in the U.S. election on November 5, which eased financial conditions for risk assets, leading to significant gains towards year-end. However, both Bitcoin and the S&P 500 encountered challenges when the MOVE Index started to move in mid-December.

The main takeaway is that bonds are driving the broader market narrative. A bullish turnaround in risk assets would likely require stabilization in the Treasury market.

Currently, with the MOVE Index trending upward, the likelihood of Bitcoin and the S&P 500 completing their respective bearish head-and-shoulders patterns seems high.$BTC