Bitcoin: the index that can anticipate the price movements of BTC

There is an index that seems to be able to help identify some movements in the price of Bitcoin in advance. 

At the base of this (inverse) correlation, however, there is no clear dynamic, but only the observation that in the past it has already happened several times that a movement in one direction of this index was followed a few days later by a movement in the opposite direction of the price of Bitcoin. 

This, for example, also happened this week. 

Therefore, monitoring this index does not provide certainty regarding the future movements of the Bitcoin price, but in certain situations, it can give some additional indication.

MOVE: the index that can anticipate the price of Bitcoin (BTC)

This is the so-called MOVE index, which is the U.S. Bond Market Option Volatility Estimate Index.

It is an index that measures daily volatility in the American bond market.

This index was originally devised by Merrill Lynch to measure fear in the U.S. bond market. 

For the stock market, there is another volatility index, the famous VIX, while for the bond market, there is the MOVE. 

In 2019 the Merrill Lynch Option Volatility Estimate became the ICE BofAML U.S. Bond Market Option Volatility Estimate Index, while still retaining the acronym MOVE. 

In particular, it measures the volatility on options traded on US Treasury Bonds. It is used as a parameter to monitor the perception of risk and to understand how the sentiment of operators in the US bond market tends to move. 

Technically, it tracks the movement of the implied volatility of the returns of the 2, 5, 10, and 30-year US Treasury from the 1-month option prices.

What is the purpose of the MOVE index

Since the implied volatility corresponds to the cost of insurance, the MOVE also measures the willingness of investors to purchase risk insurance. Therefore, the lower it is, the lower the demand for protection from risks. 

This index was created in the 1990s to provide a signal of the change in risk sentiment in the fixed income market.

In particular, unlike the VIX, the MOVE index can increase even if the underlying (the Treasury) moves in both directions. The VIX, on the other hand, usually increases when the S&P 500 index drops significantly. 

However, since it is not an infallible indicator, the MOVE index cannot be considered a predictive index, so much so that it is not closely followed by bull and bear market operators. 

The values of this index tend to move between 80 and 120, with 80 representing a situation of substantial absence of fear, while 120 represents a sentiment of extreme fear. However, movements towards the extremes are quite rare. 

The apparent inverse correlation with the price of Bitcoin

The apparent inverse correlation between the trend of the MOVE index and the price of Bitcoin was discovered by the journalist from Sole 24 Ore, Vito Lops.

To detect this apparent correlation, it is necessary to specify that while the price of BTC moves minute by minute (or rather, second by second), the MOVE index is instead calculated only once a day, at the close of the stock market session. 

Therefore, the comparison can only be made on charts with daily candles. 

Starting from 2017, it is discovered that while the MOVE index was falling from 82.5 points to 46 points, the price of Bitcoin was rising from $1,000 to almost $20,000.

Subsequently, between 2018 and 2019 the MOVE index returned above 65 points, while the price of Bitcoin was in a full bear-market.

Between 2020 and 2021, leaving aside the moment when the markets collapsed due to the start of the pandemic, the MOVE index also fell below 40 points, and Bitcoin experienced another great bullrun. 

In 2022, however, the MOVE index rose significantly, up to over 150 points, just as BTC was once again ending up in a heavy bear-market. 

Since then, it first dropped to 83 points, while Bitcoin was rebounding, and then in recent months it climbed back above 116. 

The lead of the MOVE index over the price of Bitcoin (BTC)

All of this is certainly interesting, but it is even more interesting that when MOVE and Bitcoin move in opposite directions, often MOVE moves first and then Bitcoin. 

For example, after the close of the stock market session on Monday, a strong increase in the MOVE index was observed in a short time, because it went from 100 points in the previous session (Friday) to 124 points. 

On Monday, the price of Bitcoin had indeed fallen, but it remained above the 62,000$ mark.

The day after, the decline continued, but it remained around that level. On Wednesday, however, it fell to $60,000, and on Thursday, for a brief moment, even below $59,000. Since Sunday, in just 5 days, the price of BTC has lost 6%. 

In the meantime, the MOVE index had slightly decreased, down to 116 points on Thursday, and in fact, that drop in Bitcoin stopped. 

Something similar had happened other times in the past, such as at the beginning of September or at the beginning of August. At the beginning of September, the advance of the bull movement of MOVE was three days ahead of the bear movement of Bitcoin, while at the beginning of August the two movements occurred simultaneously. 

Therefore, if the MOVE index moves significantly while the price of Bitcoin does not, it can be interpreted as a sign of a probable subsequent movement in the opposite direction of the price of Bitcoin in the following days. 

The inverse correlation between the trends of these two parameters, however, is neither fixed nor constant, so it is always necessary to interpret the information derived from this comparison with caution.