Recently, there has been a divergence between the trends of BTC and the Nasdaq. The Nasdaq has continuously hit new highs while BTC has fallen, driving the overall Crypto market to fall significantly. This is inconsistent with the traditional impression that the Nasdaq and BTC are positively correlated. So what is the logic behind this? Has a similar situation occurred in history? This article will try to explore the strength and change of the correlation between the two in different time dimensions by reviewing this round and the previous bull market.
In fact, BTC and US stocks do not have a fixed positive correlation, but have different correlations at different stages of the cycle. Looking back at the last bull market and the current bull market, we can find several rules:
1. The initial starting point and final end point of the two increases are completely consistent in terms of time.
(The last round of price increase started on March 2020 & the last round of price peaked on November 2021 & the current round of price increase started on January 2023)
2. The process of their rise is different
The Nasdaq's rise is relatively stable, and the K-line shows a straight line with a nearly fixed slope.
BTC is different. Its rising process is closer to exponential growth. The initial rising rate is relatively slow, and then it rises rapidly after a certain point in time. Coincidentally, the "turning point" of this accelerated rise corresponds to the first pullback and stabilization of the Nasdaq in the rising stage.
(2020/10 & 2023/10)
3. At the same time, the first peak of BTC corresponds to the second small pullback platform in the rising stage of Nasdaq
(2021/4 & 2024/3)
So which stage in history does the current market position correspond to? Is there any trace of the current situation of rising US stocks and falling BTC that the market is experiencing?
It can be found that in most of the two bull markets, BTC and US stocks maintained a positive correlation, and negative correlations occurred but were not dominant. In the last bull market, after BTC peaked for the first time, the Nasdaq continued to rise, but BTC pulled back, and the two trends diverged (the yellow box in the figure below), which is similar to the current market situation. History has repeated itself in the same place again.
How will the market trend go in the future? How long will the divergence between BTC and Nasdaq last? How will the divergence be reversed? From the perspective of time and intensity:
1. In the last bull market, the divergence between the two did not last long, lasting about 9 weeks on a weekly basis, and then returned to a positive correlation (weekly level).
2. In the last bull market, the time point when the two resumed positive correlation was when the BTC daily line level showed obvious decline and reached an important support position.
If we use historical standards to measure, the current market has not yet fully met the conditions for divergence recovery, and we need to wait for more K-line information. So how can we logically understand this special common trend that appeared in both bull markets? Regardless of whether BTC, gold, or U.S. stocks are in the same macro environment, prices are subject to factors such as financial liquidity and risk-free asset yields. BTC, as a more resilient asset type, can rise strongly in the early stage of the bull market and significantly outperform U.S. stocks, but things will turn around when they reach their extremes, and there is no eternal strength. After the main rise, it is weaker than the U.S. stock market, which is similar to the relationship between Altcoin and BTC. From another perspective, in the main rise stage, market liquidity is sufficient to support the overall rise in asset prices, but after rising to a certain extent, the fuel or power of the rise is exhausted, and it is difficult to support the collective rise of all categories of assets, and there may be a situation where one asset rises while the other falls. From the perspective of event factors, the market has recently been affected by the selling pressure from the German government and Mentougou. No matter how to interpret this trend, BTC will eventually return to a positive correlation with U.S. stocks after the adjustment is fully in place. (The above is the author's personal opinion for reference only)
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