CoinWorld reported:
In recent times, there has been a divergence between the performance of BTC and the Nasdaq. While the Nasdaq continues to reach new highs, BTC has been in a downward trend, leading to a significant decline in the overall crypto market. This contradicts the traditional belief that the Nasdaq and BTC are positively correlated. So what is the logic behind this, and have similar situations occurred in history? This article will explore the strength and changes in correlation between the two in different time dimensions by reviewing the current and previous bull markets.
In fact, the correlation between BTC and the US stock market is not a fixed coefficient. Instead, it varies at different stages of the market cycle. By looking back at the previous bull market and the current one, several patterns can be observed:
1. The initial starting point and the final endpoint of the upward trends of both BTC and the Nasdaq are completely consistent in terms of time dimensions.
(Previous bull market start: March 2020 & previous bull market peak: November 2021 & current bull market start: January 2023)
2. The process of the upward trends differs between the two.
The Nasdaq exhibits a relatively steady upward speed, showing a straight line with an approximately fixed slope on the candlestick chart.
On the other hand, BTC’s upward process is different. It follows an exponential growth pattern, with a slow initial increase and a rapid surge at a certain point in time. Interestingly, these “turning points” of accelerated upward movement correspond to the first stabilization of the Nasdaq during its upward phase.
(October 2020 & October 2023)
3. Both instances of BTC reaching its first peak corresponded to the second minor correction phase in the upward trend of the Nasdaq.
(April 2021 & March 2024)
So, which stage of history does the current market position correspond to? Is there any trace to follow in the situation where the US stock market is rising while BTC is falling?
It can be observed that during most of the two bull markets, BTC and the US stock market maintained a positive correlation, with negative correlation phases occurring but not dominating. In the previous bull market, after BTC reached its first peak, the Nasdaq continued to rise while BTC experienced a pullback, resulting in a divergence between their trends (highlighted in the yellow box in the figure below). This is similar to the current situation in the market, where history is repeating itself.
As for the future market trend and the duration of the BTC-Nasdaq divergence, as well as how the divergence will be resolved, we can consider both the timing and intensity:
1. In the previous bull market, the duration of the divergence was not long, approximately 9 weeks on the weekly chart, and then it returned to a positive correlation.
(Figure 1 and Figure 2)
2. In the previous bull market, the point at which the correlation between the two was restored was when BTC showed a clear exhaustion of downward momentum and reached an important support level on the daily chart.
(Figure 3)
If we use historical standards to evaluate the current market, it is not yet fully satisfying the conditions for the divergence to recover. More candlestick information is needed. So how can we logically understand this special common trend that occurred in both bull markets? Regardless of whether it is BTC, gold, or the US stock market, they are all influenced by the same macro environment, and their prices are constrained by factors such as financial liquidity and risk-free asset returns. As a more elastic asset, BTC can experience a strong rally in the early stages of a bull market and outperform the US stock market by a large margin. However, there is no everlasting strength, and after the primary upward movement, BTC may weaken compared to the US stock market. This is similar to the relationship between altcoins and BTC.
From another perspective, during the primary upward phase, market liquidity is sufficient to support the overall rise in asset prices. However, after reaching a certain level of increase, the fuel or driving force for the rise weakens, making it difficult to sustain a collective rise in all asset classes. This may result in a situation where some assets rise while others fall. From the perspective of event factors, the market has recently been impacted by selling pressure from Germany and Mentougou. Regardless of how we interpret this trend, BTC will eventually restore its positive correlation with the US stock market after a sufficient adjustment.
