The global trade pattern is reshaped, market panic sentiment is high

In 2025, the global trade landscape will undergo significant changes. The government of a certain country announced the imposition of at least a 10% tariff on goods from almost all countries, and higher tax rates on about 60 countries with substantial trade deficits. This decision has triggered panic in the global markets, primarily due to the following reasons:

• Increased corporate costs, declining profit expectations
• The global supply chain is disrupted, and economic uncertainty is increasing.
• May provoke retaliatory tariffs from other countries, increasing the risk of a trade war.

In this environment, the behavior trend of capital market participants may be:

• Reduce risk asset allocation (such as stocks, cryptocurrencies)
• Increase allocation of safe-haven assets (such as gold, US dollars, Japanese yen)
• Expectation of rising market volatility

The ripple effect of tariff policies has led to rising costs, disruptions in global supply chains, increased risks of retaliation, decreased investment willingness, and movements of safe-haven funds, ultimately triggering market panic.

The VIX panic index skyrocketed to 60 on April 7, which is an extremely rare high. Historically, such a high value has only occurred three times, the last time being on August 5, 2024, and the first time during the COVID-19 pandemic in 2020.

The current VIX index is at historically extreme levels, and we need to analyze the impact of the VIX index on market trends in depth.

VIX Index Analysis

The VIX index is derived from the prices of S&P 500 index options and reflects the market's expected volatility over the next 30 days. It is considered an important indicator of market uncertainty and panic sentiment.

In short, a higher VIX indicates that the market expects greater volatility in the future and stronger panic sentiment; a lower VIX represents market calmness and higher confidence. Historical experience shows that the VIX usually spikes during significant declines in the stock market and retreats when the stock market stabilizes and rises. Due to this inverse relationship with the stock market, the VIX is also known as the "fear index" or the market's emotional thermometer.

The normal level of VIX is around 15-20, which belongs to the calm range; when VIX is above 25, it indicates that the market is starting to panic noticeably; above 35 is considered extreme panic. During extreme crisis events (such as financial crises or epidemic outbreaks), the VIX index can even soar above 50, reflecting extreme risk aversion in the market. Therefore, by observing the changes in VIX, investors can gain insights into the strength of current market risk aversion and use it as a reference for adjusting their investment allocation.

High Volatility Panic Zone: VIX ≥ 30

When the VIX index rises above 30, it typically indicates that the market is in a state of high fear or panic. This situation is often accompanied by a sharp decline in the stock market, but historical data shows that the market often rebounds after extreme fear.

Between 2018 and 2024, there were about a dozen events when the VIX closing price rose above 30, with typical scenarios including the volatility storm in February 2018, the pre-Christmas sell-off in December 2018, the pandemic panic in February-March 2020, the retail investor storm at the beginning of 2021, and the interest rate hikes and geopolitical shocks at the beginning of 2022.

Average performance of the S&P 500: In the 7 days following these panic events, the S&P 500 tends to show a positive rebound. Statistics indicate an average rise of about 1.4%, with approximately a 73% chance of increasing 7 days after the event. This indicates that when the VIX spikes above 30 (panic zone), the stock market usually experiences a technical rebound in the short term.

Average performance of the cryptocurrency market: tends to rebound strongly after extreme panic. Statistics estimate that a certain cryptocurrency has an average 7-day rise of about 10%, with a win rate of around 75-80%. For example, when the VIX broke above 30 in February 2022 due to geopolitical crises, a certain cryptocurrency surged over 20% in the following week, demonstrating a rebound phenomenon similar to the stock market's risk aversion sentiment dissipating.

Extreme Panic Peak: VIX ≥ 40

When the standard is further raised to VIX ≥ 40 (extreme panic), qualifying events during the period from 2018 to 2024 are extremely rare. In fact, it only occurred on February 5, 2018, and on February 28, 2020, when the market crash triggered by the pandemic caused the VIX to close above 40 (for the first time in four years). Subsequently, the VIX surged to an unprecedented 82 points in March.

Due to the extremely limited sample size, the statistical results are only for reference: After the event in 2020, the S&P 500 slightly rose about 0.6% within 7 days (the market was highly volatile that week but showed a slight technical rebound), while a certain cryptocurrency rose about 7%. In terms of win rates, both had 100%, but this was solely due to a single event causing the rise (which does not guarantee a rise in similar future situations). Overall, when the VIX reaches historical extreme values above 40, it often indicates that market panic selling pressure is nearing its peak, followed by a relatively high chance of a short-term rebound, and from a larger cycle perspective, it is generally a relative low point.

• On February 5, 2018 (VIX surged over 100% intraday to nearly 50): S&P 500 only rose 0.28% a week later, showing no significant increase. However, a certain cryptocurrency plummeted 16% that day, reaching a local low of ~$6,900, and bounced back to over $11,000 two weeks later, indicating strong rebound momentum. However, in the context of that time and space, the correlation between the certain cryptocurrency and the performance of real-world assets was not high, making it inappropriate to use VIX to assess the cryptocurrency's trend.
• Mid-March 2020 (VIX peak 82): The S&P 500 rebounded more than 10% within a week after bottoming out on March 23, and a certain cryptocurrency also surged about 30% from below $4,000.

Although statistically the short-term performance after extreme panic is biased positively, the small sample size means high uncertainty. Furthermore, the correlation between a certain cryptocurrency and the US stock market at that time was not as highly aligned as it is now. In practice, a VIX above 40 more so confirms the market is in a state of extreme panic, and future market trends still need to be assessed in conjunction with fundamental information.

Low Volatility Range: VIX ≤ 15

When the VIX index falls below 15, it usually indicates that the market is in a relatively calm state. Investor sentiment is more optimistic, and the demand for hedging is low. However, the subsequent trends at this time are not as consistently clear as when the VIX is high:

Between 2018 and 2024, the VIX fell below 15 multiple times, such as after a strong rebound in the stock market in early 2019, during a stable period at the end of 2019, during an upward phase of the stock market in mid-2021, and in mid-2023. During these periods, market volatility was at historically low levels (sometimes referred to as market calm).

Average performance of the S&P 500: In the 7 days following events when the VIX is extremely low, the average return of the S&P 500 is about +0.8%, with a win rate of around 60-75% (slightly higher than random chance). Overall, stock indices tend to maintain a gradual rise or slight fluctuations in a low volatility environment. For example, after the VIX fell below 15 in October 2019, the S&P 500 remained stable and slightly reached new highs in the following week; when the VIX was around 13 in July 2023, the index continued to rise gradually by about 2% in the following week. This indicates that a low VIX does not necessarily lead to an immediate pullback, and the market may continue to maintain an upward trend for a period of time. However, it is important to be cautious, as extremely low volatility often implies market complacency, and once faced with unexpected negative news, volatility and declines may significantly amplify.

Average performance of the cryptocurrency market: The trend during low VIX periods lacks clear directionality. Statistics show that its 7-day average rise is only about +2%, with a rising win rate of about 60%. Sometimes, the calm period of low VIX coincides with the bull market phase of a certain cryptocurrency (for example, in the spring of 2019, low VIX accompanied a significant rise in a certain cryptocurrency); but at other times, during low VIX periods, a certain cryptocurrency may enter a correction trend (for example, at the beginning of 2018, when VIX remained low, a certain cryptocurrency was experiencing a downtrend after a bubble burst).

Therefore, the low VIX does not provide significant predictive value for the subsequent trends of cryptocurrencies, and it must be considered in conjunction with the capital sentiment and cyclical factors of the cryptocurrency market itself.

Overall, when the VIX is below 15, the S&P 500 tends to continue its existing trend (mostly a gradual rise), but the magnitude of the rise and the win rate are both significantly lower than the rebound after a panic. Meanwhile, cryptocurrencies lack a unified response pattern in this environment, indicating that low volatility in traditional markets does not necessarily mean synchronization with the crypto market.

Conclusion: Risks and Opportunities Coexist

When the VIX rises to the range of 30-40:

• Short-term trading may have risks, but it also contains potential reversal opportunities.
• Cryptocurrencies usually fall in sync during panic selling, but as panic subsides, the accumulated shorts from excessive selling can easily trigger a strong technical rebound.
• If it is observed that the VIX begins to peak and fall back from 35 slowly to below 30, (, it is a potential time to buy cryptocurrencies in the short term.
• It is necessary to examine the seriousness of the event itself. If a significant financial risk erupts, the market may continue to decline further.

When VIX ≥ 40:

• Represents that the market is in extreme panic, including possibilities of liquidity exhaustion, large capital withdrawals, etc.
• The likelihood of a short-term crash in cryptocurrency is extremely high, but often, if the panic eases a bit after a week or two, the expected rebound in cryptocurrency can be quite astonishing.
• In this environment, it is recommended for short-term speculators to maintain high risk control and strictly adhere to stop-losses, as "licking blood on the blade" comes with both profits and risks.
• From a long-term perspective, it is relatively low.

When VIX ≤ 15:

• The market is generally in a natural state. Whether cryptocurrencies rise often depends more on the cycles of the crypto market itself, the funding situation, or technical trends.
• In an overly calm environment, one should pay attention to the fact that once unexpected changes or black swan events occur, the VIX may rise sharply, and cryptocurrencies might also follow with a downturn.
• It may be wise to keep a portion of cash/stablecoins as a reserve during this period and stay alert to the risk trends.

The middle range of VIX 15-30:

• Generally regarded as the "normal fluctuation" range. Cryptocurrencies are also influenced by crypto cycles and macro liquidity, at which point the VIX can serve as an auxiliary indicator.
• If the VIX rises from above 20 to close to 30, it indicates that panic is gradually increasing, and moderate risk prevention is needed; conversely, if the VIX slowly falls from 25 to below 20, it shows that panic is dissipating, and cryptocurrencies may be relatively stable.

The VIX is currently at 50, facing uncertainty in tariff policies, and market sentiment remains in a state of extreme panic. However, market trends are always born out of despair.

During the 2020 pandemic, the VIX peaked above 80, while the S&P 500 was around 2300 points. Even after the recent panic sell-off, the S&P 500 is still around 5000 points, resulting in over 100% ROI within five years; at the same time, cryptocurrencies were at an excellent buying point, priced at only 4800 dollars, while the peak of this bull market reached 110,000 dollars, with a maximum increase of nearly 25 times.

Every major drop is often accompanied by market repricing and capital flow. Chaos is a ladder; whether one can use it to climb and leap forward is the key issue during this period.