Author: Lisa, LD Capital
Recently, a divergence has been observed between the trends of BTC and the Nasdaq index. The Nasdaq continues to reach new highs while BTC declines, leading to a significant downturn in the overall crypto market. This contradicts the traditional impression of a positive correlation between the Nasdaq and BTC. What is the logic behind this, and has a similar situation occurred in history? This article will attempt to explore the correlation between the two across different time dimensions by reviewing the current and previous bull markets.
In fact, BTC and U.S. stocks do not have a fixed positive correlation but vary in correlation degree at different stages of the cycle. A review of the last bull market and the current one reveals several patterns:
1. The initial starting point and the final endpoint of their rise are completely consistent in terms of time dimension
(Last round’s starting point: March 2020 & Last round’s peak: November 2021 & This round’s starting point: January 2023)
2. The process of their rise is different
The Nasdaq’s rise is relatively steady, showing a near-fixed slope straight line on the K-line chart
BTC, however, is different. Its rise is more akin to exponential growth, with a slower rate of increase initially, followed by a rapid surge at a certain point, coincidentally corresponding to the first pullback stabilization during the Nasdaq’s rise.
(October 2020 & October 2023)
3. BTC’s first peak also corresponds to the second pullback plateau during the Nasdaq’s rise
(April 2021 & March 2024)
So, which historical stage does the current market position correspond to, and is there a traceable pattern in the current situation where U.S. stocks rise and BTC falls?
It is observed that for most of the time during the two bull markets, BTC maintained a positive correlation with U.S. stocks, with negative correlation phases occurring but not dominating. In the last bull market, after BTC’s first peak, the Nasdaq continued to rise, but BTC pulled back, leading to a divergence in their trends (the part in the yellow box in the chart below), similar to the current market situation, where history repeats itself at the same point.
What will be the subsequent market direction, how long will the divergence between BTC and the Nasdaq continue, and how will it recover? Looking at time and intensity:
1. In the last bull market, the divergence did not last long, about 9 weeks on the weekly chart, before returning to a positive correlation (weekly level).
2. In the last bull market, the point of return to positive correlation was when BTC showed a clear decline in intensity on the daily chart and reached an important support level.
If measured by historical standards, the current market has not yet fully met the conditions for divergence recovery, and more K-line information is needed. How can we logically understand this unique common trend that appeared in both bull markets? Whether it’s BTC, gold, or U.S. stocks, they are subject to the same macro environment, with prices constrained by financial liquidity, risk-free asset yields, and other factors. As a more elastic asset class, BTC can strongly surge at the beginning of a bull market, significantly outperforming U.S. stocks. However, there is no perpetual strength, and after the main rise, it becomes weaker than U.S. stocks, similar to the relationship between altcoins and BTC. Another perspective is that during the main rise phase, market liquidity is sufficient to support the overall price increase of assets, but after rising to a certain extent, the fuel or momentum for the rise becomes exhausted, making it difficult to support the collective rise of all asset categories, leading to a situation where some assets rise and others fall. Recent market events have been influenced by pressure from the German government and Mentougou. Regardless of how this trend is interpreted, ultimately, after sufficient adjustment, BTC will return to a positive correlation with U.S. stocks. (The above is the author’s personal opinion for reference only)