Analysis of the divergence between Bitcoin and U.S. stocks: historical repetition or a new market trend?

Recently, there has been a noticeable divergence in the trends of Bitcoin and the Nasdaq index. The Nasdaq index continues to reach new highs, while Bitcoin is showing a downward trend, leading to a significant decline in the overall Crypto Assets market. This phenomenon contradicts the traditional perception of a positive correlation between the two. This article will explore the strength and changes in the correlation between the two over different time dimensions by reviewing the current and previous bull runs.

In fact, Bitcoin does not always maintain a fixed coefficient of positive correlation with US stocks, but exhibits varying degrees of correlation at different stages of the market cycle. By analyzing the last bull run and this bull run, we can identify the following patterns:

1. The starting and ending points of the rise for both are highly consistent in terms of time dimension.

2. There are differences in the upward process of the two.

   • The Nasdaq index shows a relatively stable increase, presenting a nearly fixed slope line on the K-line chart.
   • The rise of Bitcoin is more akin to exponential growth, with a slower initial increase, followed by a rapid surge after a certain point in time. Interestingly, this “turning point” of accelerated growth often corresponds in timing to the first pullback stabilization during the rising phase of the Nasdaq index.

3. The first peak of Bitcoin usually corresponds to the second pullback small platform during the rising phase of the Nasdaq index.

So, which stage in history does the current position of the market correspond to? Is there any correlation to be traced between the situation of the US stock market rising while Bitcoin is falling?

Observations have shown that during most of the two bull runs, Bitcoin has indeed maintained a positive correlation with the US stock market, although there have been phases of negative correlation, they are not dominant. In the last bull run, after Bitcoin peaked for the first time, the Nasdaq index continued to rise while Bitcoin began to pull back, resulting in a divergence in their trends. This is similar to the current market situation, as history seems to be repeating itself in the same manner.

Regarding the future market direction, how long the divergence between Bitcoin and the Nasdaq index will continue, and how the divergence will recover, we can analyze from two aspects: time and strength.

1. Time Dimension: In the last bull run, the divergence between the two did not last long, approximately 9 weeks on a weekly level, after which it returned to a positive correlation.

2. Intensity Dimension: In the last bull run, the time point when the two exhibited a positive correlation usually occurred when Bitcoin’s daily chart showed a significant decline in falling intensity and reached an important support level.

If we refer to historical standards, the current market does not seem to fully meet the conditions for divergence recovery, and we need to wait for more K-line information. Logically speaking, this special common trend that has appeared in both bull runs may stem from the following factors:

Bitcoin, gold, and US stocks are all in a similar macro environment, with their prices influenced by factors such as financial liquidity and the yield of risk-free assets. As a more resilient asset, Bitcoin can surge strongly in the early stages of a bull run, significantly outperforming US stocks. However, extremes eventually lead to reversals; there is no perpetual strength. After the main rise, a situation may arise where it underperforms US stocks, which is reminiscent of the relationship between small coins and Bitcoin.

From another perspective, during the main upward phase, market liquidity is sufficient to support the overall rise in asset prices. However, once the rise reaches a certain level, the momentum may become exhausted, making it difficult to sustain the collective rise of all asset categories, and a situation of gains and losses among assets may occur.

From the perspective of event factors, the recent market has been impacted by sell pressure from the German government and certain institutions. However this segment of the trend is interpreted, Bitcoin is likely to restore its positive correlation with the U.S. stock market after a sufficient adjustment.