In a surprising turn of events, while equities continue their upward march, major cryptocurrencies like Bitcoin, Ether, XRP, and Dogecoin are finding themselves lagging behind. This juxtaposition is occurring amidst rising concerns on Wall Street, as the Volatility Index (VIX) begins to stir nerves among investors.
Equities Take the Lead
On Monday, Wall Street witnessed the S&P 500 reaching an all-time high for the fourth consecutive trading day, now sitting at 6,519 points. The tech-heavy Nasdaq followed suit, setting its own lifetime high, while the Dow Jones hovered near its recent peak. Despite a bearish September manufacturing survey, equities have managed to rise, buoyed by falling bond yields. This decline in yields is in anticipation of a likely 25-basis-point cut in the Federal Reserve’s interest rate on Wednesday. Traders, as indicated by Fed funds futures, are betting on rates dropping to 3% from the current 4.25% over the next year.
Cryptocurrencies Struggle for Direction
Contrary to the ebullience in the stock market, Bitcoin (BTC) appears to be directionless, oscillating between $114,000 and $117,000. This indecision is reflected in the formation of a Doji candle, indicative of market uncertainty. At the time of writing, Bitcoin is trading at $115,860, far from the record highs of over $124,000 seen in August. This sluggish performance could be attributed to long-term holders capitalizing on profits, thereby counterbalancing the bullish pressure stemming from spot ETF inflows.
Ethereum’s ether (ETH) isn’t faring much better. After peaking at nearly $5,000 last month, it has retreated to $4,500. This pullback is puzzling, especially given that Ethereum is often dubbed “the internet bond” due to its staking yield mechanism, which could become more attractive in the light of impending Fed rate cuts.
Similarly, XRP, tailored for payments, has slid back to $3.00, failing to maintain its momentum after a bullish breakout from a descending triangle pattern confirmed last week. Meanwhile, Dogecoin, the leading meme token, has experienced a sharp decline from 30.7 cents to 26.7 cents amid rumors of large-scale selling by “whales.”
The VIX and Market Volatility
Monday’s stock rally was accompanied by an uptick in the VIX index, which measures expected volatility in the S&P 500 over the coming month. The VIX rose over 6% to 15.68 points, remaining at multi-month lows but with a notable spike that can’t be ignored. Historically, the VIX and the S&P 500 move inversely, often showing a correlation of nearly -90 over a 90-day period. However, the recent simultaneous rise of both indices hints at potential market corrections, as noted by Menthor Q, a quant-driven market intelligence platform.
“SPX rose with the VIX today. This often signals stretched upside positioning, traders grabbing calls or hedging downside [with puts], leaving markets vulnerable,” said Menthor Q. The rise in the VIX is likely driven by traders seeking S&P 500 puts or downside protection, suggesting anticipation of a correction following the expected Fed rate cut.
Bitcoin’s Implied Volatility on the Rise
Volmex’s bitcoin implied volatility index, which gauges expected price turbulence over the next 30 days, also saw a 3% increase on Monday. Interestingly, Bitcoin’s historical positive correlation with implied volatility indices has turned negative since the launch of spot ETFs in January of last year, and even more so following President Trump’s electoral victory in November last year.
Looking Ahead
As the financial world braces for the Federal Reserve’s upcoming rate decision, all eyes are on how these events will impact both traditional and digital markets. Analysts suggest that a 25-basis-point rate cut could see Bitcoin resume its slow upward trajectory. Conversely, a surprise 50-basis-point cut could send stocks, cryptocurrencies, and even gold into a frenzy.
While equities revel in their current highs, the crypto market’s muted performance serves as a reminder of its inherent volatility and the distinct dynamics at play. With the VIX hinting at potential market corrections, and Bitcoin’s implied volatility on the rise, the coming days could be pivotal for investors navigating these turbulent waters.
Steve Gregory is a lawyer in the United States who specializes in licensing for cryptocurrency companies and products. Steve began his career as an attorney in 2015 but made the switch to working in cryptocurrency full time shortly after joining the original team at Gemini Trust Company, an early cryptocurrency exchange based in New York City. Steve then joined CEX.io and was able to launch their regulated US-based cryptocurrency. Steve then went on to become the CEO at currency.com when he ran for four years and was able to lead currency.com to being fully acquired in 2025.
