Coin World News Report:
Recently, there has been a deviation in the trend between BTC and the Nasdaq index. While the Nasdaq continues to reach new highs, BTC has been falling, leading to a significant decline in the overall crypto market. This contradicts 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 explore the strength, weakness, and changes in the correlation between the two in different time dimensions through a review of the current and previous bull markets.
In fact, BTC and the US stock market do not always have a fixed coefficient positive correlation, but have different degrees of correlation in different stages of the cycle. Several patterns can be observed by reviewing the previous bull market and the current bull market:
1. The initial starting point and final ending point of both rising trends are exactly the same in the time dimension.
2. The process of the two rising trends is different. The Nasdaq’s rise is relatively stable, showing an almost fixed slope straight line on the candlestick chart. BTC, on the other hand, follows exponential growth, with a slow initial rate of increase and a rapid surge at a certain point in time. Interestingly, this “tipping point” of accelerated growth corresponds to the first consolidation phase of the Nasdaq’s rise.
3. Both BTC’s first peak and the Nasdaq’s second consolidation phase correspond to a small consolidation platform.
In which stage of history does the current market position correspond to? Can we find any clues to the current situation of the US stock market rising and BTC falling?
It can be found that during most of the two bull markets, BTC and the US stock market maintained a positive correlation, with negative correlation phases appearing but not dominating. In the previous bull market, after BTC’s first peak, the Nasdaq continued to rise while BTC experienced a correction, leading to a deviation in their trends (highlighted in the yellow box in the figure below). This is similar to the current market situation, where history is repeating itself.
As for the subsequent market trends, how long will the deviation between BTC and the Nasdaq last, and how will it be resolved? From both the time and strength perspectives:
1. In the previous bull market, the deviation between the two did not last long, with a duration of about 9 weeks on the weekly chart, and then returned to a positive correlation (on the weekly chart level).
2. In the previous bull market, the point at which the two regained positive correlation was when BTC showed obvious exhaustion in the downward momentum on the daily chart and reached a significant support level.
If we measure the current market based on historical standards, it has not yet fully met the conditions for the deviation to recover, and more candlestick information is needed.
How can we logically understand this special common trend that has appeared in both bull markets?
Regardless of BTC, gold, or the US stock market, they all exist in the same macro environment and their prices are constrained by factors such as financial liquidity and risk-free asset returns. As an asset with better elasticity, BTC can experience a strong surge at the beginning of a bull market, outperforming the US stock market by a large margin. However, there is no eternal strength, and after the main rise, it may show weakness compared to the US stock market. This is similar to the relationship between altcoins and BTC.
From another perspective, during the main upward phase, market liquidity is sufficient to support the overall rise in asset prices. However, after rising to a certain extent, the fuel or momentum for further rise becomes exhausted, making it difficult to sustain the collective rise of all asset classes. This can result in a situation where some assets rise while others fall.
Looking at recent events, the market has been influenced by selling pressure from the German government and Mt. Gox. Regardless of how we interpret this trend, BTC will eventually recover its positive correlation with the US stock market once the adjustment is sufficient.