BTC and Nasdaq Divergence: Historical Repetition or a New Trend?

Recently, an interesting phenomenon has emerged in the market: the Nasdaq index continues to hit new highs, while Bitcoin is on a downward trend, leading to a significant drop in the entire cryptocurrency market. This seems to deviate from the traditional perception that the Nasdaq and Bitcoin have a positive correlation. So, what is the logic behind this? Has there been a similar situation in history? This article will explore the changes in correlation between the two over different time dimensions by reviewing the current and previous bull markets.

In fact, Bitcoin and US stocks do not have a fixed coefficient positive correlation, but rather exhibit varying degrees of correlation at different cyclical stages. Reviewing the last bull market and the current bull market, we can identify the following patterns:

1. The starting and ending points of the two increases are highly consistent in the time dimension.

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

   • The Nasdaq is rising at a relatively stable rate, showing a nearly fixed slope line on the candlestick chart.
   • The process of Bitcoin’s rise is more akin to exponential growth, with a slower initial rate of increase, followed by a rapid surge after a certain point in time. Interestingly, the “turning point” for this accelerated rise often corresponds to the first pullback stabilization during the upward phase of the Nasdaq.

3. The first peak of Bitcoin usually corresponds to the second pullback mini-platform in the rising phase of the Nasdaq.

So, what stage does the current market position correspond to in history? Is there any pattern to the current situation of rising US stocks and falling Bitcoin?

Observations show that for most of the two bull markets, Bitcoin maintained a positive correlation with U.S. stocks, although there were phases of negative correlation, they were not dominant. In the last bull market, after Bitcoin peaked for the first time, the Nasdaq continued to rise while Bitcoin corrected, leading to a divergence in their trends. This is quite similar to the current market situation, as history seems to be repeating itself in the same way.

Regarding the subsequent market direction, the duration of the divergence between Bitcoin and the Nasdaq, and how the divergence will recover, we can analyze it from two dimensions: time and strength.

1. Time Dimension: In the last bull market, the duration of divergence between the two was relatively short, lasting about 9 weeks on a weekly chart, after which they returned to a positive correlation.

2. Strength Dimension: In the previous bull market, the time point when the two restored a positive correlation usually occurred when the daily level of Bitcoin showed a significant decline in strength and reached an important support level.

If measured by historical standards, the current market does not seem to have fully met the conditions for divergence recovery, and more K-line information is needed. So, how can we logically understand this special common trend that appeared in both bull markets?

Whether it is Bitcoin, gold, or US stocks, they are all constrained by macroeconomic factors such as financial liquidity and the yield on risk-free assets. Bitcoin, as a more resilient asset class, can surge strongly in the early stages of a bull market, significantly outperforming US stocks. However, extremes must reverse; there is no perpetual strength. After the main upward phase, it may show weakness compared to US stocks, which is similar to the relationship between altcoins and Bitcoin.

From another perspective, during the main upward phase, the market liquidity is sufficient to support the overall rise of asset prices. However, after rising to a certain extent, the upward momentum may be exhausted, making it difficult to support a collective rise in all asset categories, which may lead to a situation where some assets rise while others fall.

From the perspective of event factors, the recent market has been affected by selling pressure from the German government and certain institutions. Regardless of how this trend is interpreted, Bitcoin is likely to restore its positive correlation with the US stock market after sufficient adjustment. Investors should closely monitor market changes and adjust their strategies in a timely manner.