The Trade War Escalates, VIX Spikes Past 60

The 2025 tariff war has escalated significantly. The Trump administration announced a blanket 10% minimum tariff on goods from nearly all countries, along with additional tariffs targeting around 60 nations with the largest U.S. trade deficits. This sparked widespread market panic due to the following reasons:

• Higher tariffs increase business costs, shrinking profit expectations

• Global supply chains are disrupted, heightening economic uncertainty

• Risk of retaliatory tariffs grows, amplifying trade war risks

In such an environment, market participants tend to:

• Cut back on risk assets like equities and crypto

• Rotate into safe-haven assets like gold, USD, and JPY

• Raise volatility expectations → VIX surges

In short:
Tariffs → Rising costs + Supply chain disruption + Retaliation risk + Pullback in risk-taking + Flight to safety → Market panic

The VIX (CBOE Volatility Index) spiked to 60 on April 7—a level seen only thrice in history. The most recent was on August 5, 2024, while the first occurred during the COVID-19 crisis in early 2020.

With the VIX now sitting at historically extreme levels, how can we use it to anticipate potential market moves?

Reference: Tradingview

What is the VIX?

The VIX, also known as the Volatility Index, measures the market’s expectation of volatility over the next 30 days based on S&P 500 options prices. It’s widely regarded as a gauge of market uncertainty and investor fear.

In simple terms, a higher VIX indicates the market expects greater volatility ahead, often tied to rising fear, while a lower VIX reflects a calmer, more confident market. Historically, the VIX tends to spike during sharp equity market declines and fall during stable or rising markets. Because of this inverse correlation, it’s often referred to as the “fear index” or the market’s emotional thermometer.

• Normal Range: VIX values below 15–20 are typically seen as calm.

• Above 25: Indicates growing fear in the market.

• Above 35: Signals extreme fear.
  In extreme crises, such as financial meltdowns or pandemic outbreaks, the VIX can surge above 50, reflecting intense risk-off sentiment. As such, monitoring VIX movements can offer investors insight into market sentiment and help inform asset allocation decisions.

High Volatility / Fear Zone: VIX ≥ 30
When the VIX rises above 30, it usually signals a phase of elevated fear or panic in the market, often coinciding with sharp equity selloffs. Interestingly, history suggests that after such spikes, markets often experience short-term rebounds.

• Sample Events: Between 2018 and 2024, there were over a dozen instances where the VIX closed above 30 for the first time during a volatility spike. Typical scenarios include the Volmageddon in February 2018, the Christmas Eve sell-off in December 2018, the COVID panic in February–March 2020, the retail-driven surge in early 2021, and the rate hike/geopolitical shocks in early 2022.
• S&P 500 Average Performance: In the 7 days following a VIX spike above 30, the S&P 500 has historically rebounded, gaining an average of 1.4% with a 73% probability of positive returns.

This suggests that when the VIX enters the fear zone (≥30), a short-term technical rebound in equities is statistically likely.

• Bitcoin Average Performance: Bitcoin also tends to rebound strongly following extreme fear events. On average, BTC gains around 10% over the following 7 days, with a win rate of 75–80%. For example, in February 2022, when the VIX jumped above 30 due to geopolitical tensions, BTC surged more than 20% within a week, mirroring the relief rally in equities.

Extreme Panic Zone: VIX ≥ 40
Raising the bar to VIX ≥ 40 signals extreme fear. These events are rare. From 2018 to 2024, only two major incidents fit this category: on February 5, 2018, VIX intraday surged over 100% to nearly 50; on February 28, 2020, COVID-driven crash pushed VIX above 40, eventually peaking at an unprecedented 82 in mid-March

Due to the limited number of samples, the statistical results should be treated as a reference only. In the 2020 event, the S&P 500 rebounded by approximately 0.6% within 7 days (despite extreme volatility during that week, a mild technical rebound occurred). Bitcoin (BTC) recovered by around 7%. Both assets showed a 100% win rate, but this was based on a single instance, which does not guarantee similar outcomes in future scenarios. Overall, when the VIX exceeds 40, marking a historical extreme, it often signals peak panic-driven sell-offs, with a relatively high chance of a short-term rebound. From a long-term perspective, such points tend to be cyclical lows.

• February 5, 2018 (VIX intraday surge of over 100%, nearing 50):
  The S&P 500 gained only 0.28% a week later, showing no significant rebound.
  However, Bitcoin plunged 16% on the same day, hitting a local low of around $6,900, and rebounded to over $11,000 within two weeks, reflecting strong reversal momentum. Still, during that period, BTC had a weak correlation with traditional assets, making VIX a poor indicator for BTC price movements at that time.
• Mid-March 2020 (VIX peak at 82): The S&P 500 bottomed on March 23 and rebounded over 10% within the following week. Bitcoin also jumped by around 30% from below $4,000.

Although the short-term performance following extreme panic events tends to be positively skewed, the small sample size results in high uncertainty. Additionally, the correlation between BTC and U.S. equities was much lower back then than it is today. In practice, when the VIX exceeds 40, it mainly serves as a signal of extreme market fear, rather than a precise trading trigger. Any forward-looking strategy should still be grounded in fundamental analysis.

Low Volatility Zone: VIX ≤ 15
When the VIX drops below 15, it usually signals a calm and optimistic market, with low demand for hedging or risk aversion. However, unlike high-VIX periods, post-low-VIX behavior is more ambiguous.

• Sample Events: Between 2018 and 2024, the VIX fell below 15 on several occasions — for example, in early 2019 after a strong market rebound, late 2019 during a period of steady growth, mid-2021 during a bullish phase, and around mid-2023. These periods were marked by historically low volatility, sometimes described as a “calm market.”
• S&P 500 Performance: On average, following these low-VIX events, the S&P 500 returned about +0.8% over the next 7 days, with a win rate of roughly 60–75%, slightly better than random chance. In general, low-volatility environments tend to support gradual uptrends or mild sideways movement. For instance, after the VIX dipped below 15 in October 2019, the S&P 500 remained stable and edged slightly higher over the following week. In July 2023, with the VIX near 13, the index continued its upward drift, gaining about 2% in the subsequent week. These cases suggest that a low VIX does not necessarily imply an imminent pullback — the market can sustain its uptrend for some time. That said, prolonged periods of ultra-low volatility can signal market complacency, and any unexpected negative catalyst may lead to sharper-than-usual spikes in volatility and drawdowns.
• Bitcoin (BTC) Performance: BTC’s performance during low-VIX periods shows no clear directional trend.
  Statistically, the 7-day average return for BTC is about +2%, with a win rate around 60%. In some cases, like spring 2019, low VIX coincided with a strong Bitcoin bull run. In contrast, during early 2018, when the VIX remained subdued, BTC was in a post-bubble correction phase, and prices declined steadily.

This indicates that low VIX has limited predictive power for BTC, and crypto price action is more dependent on internal market sentiment and cycle dynamics.

When the VIX is below 15, the S&P 500 tends to continue its existing trend, which is most often a slow upward grind. However, both the magnitude and consistency of returns are noticeably lower than rebounds seen after high-VIX panic events. For BTC, there is no consistent pattern, reinforcing the idea that low volatility in traditional markets does not necessarily translate to similar behaviour in the crypto space.

Conclusion: Risk and Opportunity Coexist — Use VIX as a Reference, Not a Rule

When VIX spikes into the 30–40 range:

• Short-term risks are elevated, but so are the chances of a sharp reversal.
• Bitcoin (BTC) often drops alongside panic-driven selloffs, but once fear begins to subside, oversold conditions can trigger a strong technical rebound.
• If VIX shows signs of peaking and begins to fall back below 30, it could signal a potential short-term buying opportunity for BTC.
• However, the severity of the underlying event must be considered — if it involves a systemic financial risk, markets may continue to decline.

When VIX ≥ 40:

• The market is in extreme panic, potentially facing liquidity crunches and massive capital outflows.
• BTC is likely to experience steep short-term losses, but historically, once the fear starts to ease even slightly, the bounce can be powerful.
• In this environment, short-term traders should implement strict risk controls and stop-loss strategies — it’s a high-risk, high-reward setup akin to “catching a falling knife.”
• From a long-term perspective, such panic-driven plunges have historically marked cyclical lows.

When VIX ≤ 15:

• The market is relatively calm. BTC’s movements in this phase are more likely driven by crypto-native factors — market cycles, liquidity flows, or technical setups.
• In overly quiet conditions, investors should stay alert for black swan events or unexpected shocks, which can cause VIX to spike and drag BTC lower in response.
• During these times, it may be wise to keep some cash or stablecoins on hand, ready to act when the risk landscape shifts.

When VIX is between 15–30:

• This is generally considered the “normal volatility” zone. BTC’s behaviour in this range is still influenced more by crypto fundamentals and macro liquidity, but VIX can serve as a useful supporting signal.
• A rise from 20 to near 30 suggests fear is rising — time to manage downside risk. Conversely, if VIX retreats from 25 to below 20, it indicates easing concerns, which may support more stable BTC price action.

At the time of writing, VIX sits around 50. With ongoing uncertainty around U.S. tariffs, market sentiment remains gripped by extreme fear — but as history has shown, major rallies are often born out of despair.

During the 2020 COVID crash, VIX peaked above 80 while the S&P 500 bottomed near 2,300 points. Even after a panic-driven drop today, the index still trades near 5,000 — more than a 100% return in five years.
BTC, priced around $4,800 during the 2020 panic, went on to reach an all-time high of $110,000 this cycle — a nearly 25x gain.

Each crash resets valuations and triggers capital flows. Chaos creates the ladder — the real challenge is whether you can climb it.

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