Tighter monetary policy conditions are negative for Risk Assets


Just as we expected, following the extremely hawkish comments made yesterday by the Federal Reserve governor, Lael Brainerd signaling for a much faster path of monetary policy tightening ahead, the Volatility Index ( VIX ) managed to bounce strongly from the ascending and expanding megaphone pattern that we have been talking about on numerous occasions in recent weeks. As a result, we saw a sharp intraday sell-off in yesterday’s session for all risk assets, including Bitcoin . As much as investors want to think of BTC as a non-correlated market hedge, the truth is that for the most part BTC moves and acts as a risk-asset. By definition, Risk-Assets are very sensitive to sudden changes and shifts in monetary policy and tend to underperform when monetary policy conditions become tighter, interest rates increase and liquidity becomes more expensive.
The sell-off in Risk Assets and the continued uptick in volatility ( VIX ) are expected to further accelerate throughout the rest of this week in anticipation of last month’s FOMC minutes as well as the statements of generally much more hawkish Federal Reserve governors like Bullard and Williams later this week.

Lael Brainer has for long been considered as the biggest “dove” among the Federal Reserve governors as she has always supported a relatively easy monetary policy and a slower path of normalizing. She was the Federal Reserve member that was defending the “transitory” definition of the elevated levels of Inflation more than anyone else on the board. So, to se the most dovish Fed member make such a sharp turn in her economic views, projections and overall stance was a huge shock to the market.


As you can see on the daily chart of Bitcoin , after the most recent sharp rally, the price has reached the critical $45,000-$48,000 resistance range where we see a multitude of dynamic and very strong resistances residing. The VWAP lines that you see have been anchored at the last 4 most important turning points for Bitcoin and as you can see 3 of these lines (the longer-period ones, which are indeed a lot more influential for the price) are currently providing strong resistance for the price and are bringing a lot of pending SELL orders around that range. When you recognize that this is coinciding almost perfectly with the sharp bullish reversal in the Volatility Index ( VIX ), then it becomes a lot more clear that the path of least resistance for the price moving forward is indeed lower.

As we stated in our Bitcoin price analysis few days ago, we expect to see the price retrace down towards the $40,000 level, which apart from presenting a meaningful round psychological support and demand level where a lot of pending BUY orders are waiting, will also coincide perfectly with the upward sloping VWAP (green) from the most recent swing low.

Check out our other article on the topic below:



We believe that the expected volatility expansion in the coming days will result in a sharp sell-off in most risk assets. Thus, short-term oriented traders and active money managers should try to relocate their holdings into more defensive, low-multiple stocks of companies with strong balance sheets and high Free Cash Flow levels. Once we see the VIX printing a new high and showing signs of a potential bearish reversal, then we would be willing to re-engage with some of the more risk-oriented assets.

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