Author: Lisa, LD Capital
Recently, the trend of BTC and Nasdaq has diverged. Nasdaq has continuously hit new highs while BTC has declined, leading to a significant decline in the overall crypto market. This is inconsistent with the traditional impression that Nasdaq and BTC are positively correlated. So what is the logic behind this? Has there been a similar situation 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 two aspects: time and intensity:
1. In the last bull market, the divergence between the two did not last long. On the weekly chart, it lasted about 9 weeks, 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 signs of weakening downward momentum 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 macroeconomic environment, their prices are subject to factors such as financial liquidity and the rate of return on risk-free assets. BTC, as an asset class with better elasticity, can rise strongly in the early stages of a bull market and significantly outperform U.S. stocks. However, everything will turn around when it reaches its extreme, and nothing will remain strong forever. After the main rise, it became weaker than U.S. stocks again. This is similar to the relationship between altcoins and BTC.
From another perspective, in the main rising phase, market liquidity is sufficient to support the overall rise in asset prices. However, after rising to a certain level, the fuel or driving force for the rise becomes exhausted, making it difficult to support the collective rise of all asset categories, and a situation where some assets rise while others fall may occur.
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 the US stock market after the adjustment is fully in place. (The above is the author's personal opinion for reference only)
