#BinanceAlphaAlert
The key market dynamics that drove the rise of bitcoin and SPX after the U.S. elections are changing. BTC and the S&P 500 seem to be following interest rate volatility, which is increasing.
What to know:
The MOVE index, which represents the volatility of the Treasury bond market, is increasing.
It could generate tighter financial conditions, leading to deeper losses in BTC and the S&P 500.
The index bottomed out in mid-December, coinciding with the exhaustion of the bullish trend in BTC and stocks.
The cryptocurrency market is known for its fast pace, and if you have any doubts about it, just observe how sentiment turned bearish in just 24 hours.
This sudden change is not coincidental. Bitcoin (BTC) and the S&P 500 are forming a head and shoulders pattern, coinciding with a shift in the market dynamics that drove the post-election rise in both assets.
We are specifically referring to the MOVE index, or Merrill Lynch's options volatility estimate index, which measures the expected volatility over 30 days in the U.S. Treasury bond market.
As the second largest financial market in the world, after the foreign exchange market, volatility in the fixed income market, especially in Treasury bonds, often leads to tighter financial conditions and can generate risk aversion across all corners of the financial markets.
Unfortunately for cryptocurrency bulls, the MOVE index is rising, after bottoming out in mid-December near 82, according to the TradingView charting platform. On Tuesday, the index rose to 102.78 after some better-than-expected manufacturing data indicated a robust economy and persistent inflation, resulting in higher Treasury bond yields. Specifically, the 30-year bond yield rose to 4.92%, the highest since November 23, and the 10-year bond yield rose to 4.68%, the highest since May.
Interestingly, on Tuesday BTC fell 5% to $96,900, while the S&P 500 dropped over 1%. The post-election bullish trend in both assets lost momentum in mid-December, coinciding with the MOVE index low, as shown below.
The MOVE index plummeted after Donald Trump's victory in the U.S. elections held on November 5, which helped ease financial conditions for risk assets, resulting in impressive gains at the end of the year. However, both BTC and the S&P 500 faced challenges when the MOVE index began to change in mid-December.
The key takeaway is that bonds are driving the overall market narrative. An upward shift in risk assets will likely require the Treasury bond market to stabilize.
Currently, with the MOVE index trending upwards, the likelihood of Bitcoin and the S&P 500 completing their respective head and shoulders bearish reversal patterns seems high.
