CoinWorld Report:
Author: Lisa, LD Capital
Recently, there has been a divergence between BTC and the Nasdaq, with the Nasdaq continually setting new highs while BTC declines, leading to a significant downturn in the overall crypto market. This contrasts with the traditional expectation of a positive correlation between the Nasdaq and BTC. What is the logic behind this, and have similar situations occurred in history? This article explores the varying degrees of correlation between these two entities across different timeframes, comparing the current and previous bull markets.
In fact, BTC and the U.S. stock market do not exhibit a fixed coefficient of positive correlation but rather show varying degrees of correlation during different phases of the cycle. Reviewing the last bull market and the current one reveals several patterns:
1. The initial starting point and final endpoint of the uptrends in both BTC and the Nasdaq align perfectly in terms of time dimension.
(Last uptrend start point March 2020 & last peak November 2021 & current uptrend start point January 2023)
2. The processes of their uptrends differ:
The Nasdaq rises steadily, displaying a nearly constant slope on the candlestick chart.
BTC, on the other hand, shows exponential growth resembling an index, with a slow initial uptrend followed by a rapid surge at a certain point in time. Coincidentally, these inflection points of accelerated uptrend correspond to the Nasdaq stabilizing after its first pullback during its own uptrend stages.
(October 2020 & October 2023)
3. Furthermore, each of BTC’s first peaks also corresponds to a minor plateau in the Nasdaq’s uptrend.
(April 2021 & March 2024)
So, where does the current market position correspond to in history, and is there a precedent for the current situation of U.S. stocks rising while BTC falls? Throughout most of the two bull markets, BTC and U.S. stocks maintained a positive correlation, with periods of negative correlation appearing but not dominating. In the last bull market, after BTC’s first peak, the Nasdaq continued to rise while BTC corrected, leading to a divergence in their trends (highlighted in the yellow box in the figure below), similar to the current market situation repeating history once again.
Looking ahead, how long will the divergence between BTC and the Nasdaq continue, and how will it revert? From both a temporal and intensity perspective:
1. In the last bull market, periods of divergence lasted approximately 9 weeks on a weekly timeframe before returning to a positive correlation.
(Weekly timeframe)
2. The point at which they reverted to positive correlation in the last bull market was marked by a significant decline in BTC’s daily intensity and reaching crucial support levels.
(Daily timeframe)
Using historical standards to measure, the current market has not yet fully met the conditions for divergence recovery and requires more candlestick information. So, how can we logically understand this unique common trend observed in both bull markets? Regardless of whether it’s BTC, gold, or U.S. stocks, they all operate within a similar macroeconomic environment, influenced by factors such as financial liquidity and risk-free asset returns. BTC, being a more elastic asset class, can strongly rise in the early stages of a bull market, significantly outperforming U.S. stocks. However, this strength is not perpetual; after the main upward phase, BTC can weaken relative to U.S. stocks, echoing similar dynamics seen between altcoins and BTC. Another perspective suggests that during the main uptrend phase, market liquidity is sufficient to support overall asset price increases. Yet, once prices rise to a certain extent, the fuel or driving force behind the uptrend may weaken, struggling to sustain a collective rise in asset categories, leading to a scenario where some assets rise while others fall. From an event-driven perspective, recent market conditions have been influenced by pressures from the German government and Mt. Gox. Regardless of how one interprets this trend, BTC is expected to return to a positive correlation with U.S. stocks once adjustments are sufficiently made. (The above are the author’s personal views and are for reference only)