2025 The tariff war is fully escalated. The Trump administration announced that it would impose a minimum tariff of 10% on goods from almost all countries, and impose higher tariffs on about 60 countries with the largest trade imbalance with the United States, causing panic in the global market. The main logic is
- Tariffs increase corporate costs and squeeze profit expectations
- Disruption of global supply chains, deepening economic uncertainty
- Triggering retaliatory tariffs and expanding the risk of a trade war
In such an environment, capital market participants will:
- Reduce risk asset allocation (e.g. stocks, cryptocurrencies)
- Increase safe-haven asset allocation (such as gold, US dollar, Japanese yen)
- Increased volatility expectations → VIX surges
Tariffs → rising costs + global supply chain disruptions + retaliation risks + investment retrenchment + safe-haven flows → market panic
The VIX index also surged to 60 on April 7. What does this mean? There have been only three such incidents in history. The last one occurred on August 5, 2024, and the first one was during the 2020 COVID-19 pandemic.
We can be sure that the current VIX index is at an extreme level at a historical level. In the face of such a situation, how can we predict the market through VIX?
Reference: Tradingview
What is VIX?
VIX is an indicator of market uncertainty and panic sentiment, which is calculated based on the price of S&P 500 index options and the expected volatility in the next 30 days.
Simply put, the higher the VIX, the more volatility the market expects in the future and the stronger the panic sentiment; the lower the VIX, the calmer the market and the higher the confidence. Historical experience shows that the VIX usually soars when the stock market falls sharply and falls back when the stock market rises and stabilizes. Due to this inverse relationship with the stock market, the VIX is also called the "fear index" or the market's emotional thermometer.
The normal level of VIX is about 15-20, which is a calm range; when VIX is higher than 25, it shows that the market has begun to panic; when it exceeds 35, it is extremely panic. In extreme crisis events (such as financial crises or epidemic outbreaks), the VIX index can even soar to more than 50, reflecting the extreme risk aversion in the market. Therefore, by observing the changes in VIX, investors can gain insight into the strength of the current market risk aversion and use it as a reference for adjusting investment allocation.
High volatility panic range: VIX ≥ 30
When the VIX rises above 30, it usually indicates that the market is in a stage of high fear or panic. This situation is often accompanied by a sharp drop in the stock market, but historical data shows that the market often rebounds after extreme fear.
- Sample events: Between 2018 and 2024, there were about a dozen events in which the VIX closing price rose above 30 for the first time. Typical scenarios included the volatility storm in February 2018, the Christmas Eve sell-off in December 2018, the epidemic panic in February-March 2020, the retail investor storm in early 2021, and the interest rate hikes and geopolitical shocks in early 2022.
- Average performance of the S&P 500: Within 7 days after these panic events, the S&P 500 tends to rebound positively. Statistics show that the average increase is about 1.4%, and there is about a 73% chance that it will rise 7 days after the event.
- This shows that when VIX soars above 30 (panic zone), the stock market will most likely experience a technical rebound in the short term.
BTC average performance: Bitcoin also tends to rebound strongly after extreme panic. Statistics estimate that the average 7-day increase of BTC is about 10%, and the winning rate is about 75-80%. For example, in February 2022, when VIX rose above 30 due to the geopolitical crisis, Bitcoin rose by more than 20% in the following week, showing a similar rebound phenomenon of risk aversion as in the stock market.
Extreme panic peak: VIX ≥ 40
When the criteria is further raised to VIX ≥ 40 (extreme panic), qualifying events are extremely rare during the 2018–2024 period. In fact, only on February 5, 2018, and February 28, 2020, the pandemic-induced plunge caused the VIX to close above 40 (the first time in four years), and then the VIX soared to an unprecedented 82 points in March.
Due to the small number of samples, the statistical results are only for reference: after the incident in 2020, the S&P 500 rebounded slightly by about 0.6% within 7 days (the market fluctuated violently that week but there was a slight technical rebound), and BTC rebounded by about 7%. In terms of winning rate, both are 100%, but it is only due to a single event (it does not mean that the same situation in the future is guaranteed to rise). In general, when VIX reaches a historical extreme value of more than 40, it often means that the market is extremely panic and selling pressure is close to the peak, and the chance of a short-term rebound is relatively high. In the long cycle, it is a relatively low point.
- February 5, 2018 (VIX surged more than 100% to nearly 50): S&P 500 rose only 0.28% a week later, with no significant increase. However, Bitcoin plummeted 16% that day to a local low of ~$6,900, and rebounded to more than $11,000 two weeks later, showing a sharp rebound momentum. However, in the context of time and space at that time, the correlation between Bitcoin and the trend of real-world assets was not high, so it was not appropriate to use VIX to judge the trend of Bitcoin in this case.
- Mid-March 2020 (VIX peak 82): After hitting bottom on March 23, the S&P 500 rebounded more than 10% within a week, and Bitcoin also quickly rose by about 30% from below $4,000.
Although the short-term performance after extreme panic is statistically positive, the small sample size means high uncertainty, and the correlation between Bitcoin and US stocks was not as high as it is now. In practice, VIX exceeding 40 is more of a signal to confirm that the market is in an extreme panic state, and the future market trend still needs to be judged in combination with fundamental information.
Low volatility range: VIX ≤ 15
When the VIX index drops below 15, it usually means that the market is relatively calm. Investors are more optimistic and risk aversion is low. However, the subsequent trend is not as obvious and consistent as when the VIX is high:
- Sample events: VIX fell below 15 several times during 2018–2024, such as after a strong stock market rebound in early 2019, during a market stabilization period in late 2019, during a stock market rally in mid-2021, and in mid-2023. During these periods, market volatility was historically low (sometimes referred to as market calm).
- Average performance of the S&P 500: Within 7 days after the event point of extremely low VIX, the average return rate of the S&P 500 was about +0.8%, and the winning rate was about 60-75% (slightly higher than random chance). In general, stock indexes tend to maintain a slow rise or small fluctuations in a low volatility environment. For example, in October 2019, the week after the VIX fell below 15, the S&P 500 basically remained stable and slightly hit a high; in July 2023, when the VIX was around 13, the index continued to rise slowly by about 2% in the following week. This shows that a low VIX does not necessarily lead to an immediate pullback, and the market may continue to rise for some time. However, it should be noted that extremely low volatility often implies market complacency. Once a sudden negative situation occurs, volatility and declines may be significantly amplified.
- BTC average performance: Bitcoin's trend during low VIX periods lacks clear directionality. Statistics show that its 7-day average increase is only about +2%, and the winning rate of the increase is about 60%. Sometimes the calm period of low VIX coincides with the bull market phase of BTC itself (for example, in the spring of 2019, low VIX accompanied a sharp rise in BTC); but sometimes BTC has a correction during the low VIX period (for example, when VIX remained low in early 2018, Bitcoin was in a bubble burst and downward trend).
Therefore, the low VIX has little reference value for predicting the subsequent trend of BTC, and it must be combined with the capital sentiment and cycle considerations of the crypto market itself.
In general, when VIX is below 15, the S&P 500 tends to continue the existing trend (in most cases, it rises slowly), but the increase and winning rate are significantly lower than the rebound after panic. BTC lacks a unified reaction pattern in this environment, indicating that low volatility in traditional markets does not necessarily mean synchronization in the crypto market.
Conclusion: Risks and opportunities coexist, and this is just a reference
When VIX soars to the 30–40 range
- There may be risks in the short term, but there are also potential reversal opportunities.
- BTC usually falls in tandem with panic selling pressure, but as panic eases, the accumulated shorts from excessive selling can easily trigger a strong technical rebound.
- If we observe that VIX begins to peak and fall (slowly returning from 35 to below 30), it is a potential opportunity to buy BTC in the short term.
- We must also examine the severity of the incident itself. If a major financial risk breaks out, the market may continue to fall sharply in the future.
When VIX ≥ 40
- It means that the market is in extreme panic, including the possibility of liquidity depletion and large-scale capital withdrawal.
- The probability of a sharp drop in BTC in the short term is extremely high, but if the panic is slightly relieved after a week or two, the expected rebound of BTC will also be relatively surprising.
- In this environment, short-term speculators are advised to maintain a high level of risk control and strictly adhere to stop-loss rules, because while "walking on the edge of a knife", profits and risks coexist.
- In terms of the big cycle, it is a relatively low point
When VIX ≤ 15
- The market is generally in a natural state. Whether BTC rises or not often depends more on the crypto market’s own cycle, funding or technical trends.
- In an overly calm environment, be aware that once a sudden change or black swan event occurs, VIX will jump rapidly and BTC may also follow suit.
- You may consider keeping some cash/stablecoins as a reserve during this period and keep an eye on the risk trends at all times.
The middle range of VIX 15–30
- It is generally regarded as a "normal fluctuation" range. BTC is also affected by the crypto cycle and macro funds, and VIX can be used as an auxiliary indicator at this time.
- If VIX climbs from above 20 to close to 30, it means panic is gradually rising and it is necessary to take appropriate risk prevention measures; on the contrary, if VIX slowly falls back from 25 to below 20, it shows that panic is fading and BTC may be relatively stable.
At the time of writing, VIX is at 50. Faced with the uncertainty of US tariffs, market sentiment is still in a state of extreme panic. However, market trends are always born out of desperation.
During the 2020 epidemic, the VIX reached a high of over 80, and the S&P 500 was around 2,300 points. Even after the recent panic sell-off, the S&P 500 is still around 5,000 points, and the ROI is still over 100% in five years. At the same time, Bitcoin was at an excellent buying point. It was only US$4,800 at the time, and the high point of this bull market was US$110,000, with a maximum increase of nearly 25 times.
Every big drop is often accompanied by a repricing of the market and capital flows. Chaos is the ladder, and whether we can use it to climb up is the key issue of this period.
