Recently, the Nasdaq index of US stocks has continued to hit new highs, while BTC has fallen sharply, and the two have lost the positive correlation they used to have. This article will review the current and previous bull markets, and the strength and changes of the correlation between the two in different periods.
In the past few years, the trend of BTC and the Nasdaq index of US stocks has diverged. The Nasdaq index has continuously set new highs while BTC has fallen, leading to a significant decline in the overall crypto market. This is inconsistent with the traditional impression that the Nasdaq index 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 always have a fixed coefficient 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:
The initial starting point and final end point of the two rises are exactly the same in terms of time.
The two rise in different ways
The Nasdaq's rise is relatively stable, showing a straight line with an approximately fixed slope as shown on the K-line.
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.
3. At the same time, the first peak of BTC corresponds to the second small pullback platform in the rising stage of Nasdaq
Which stage in history does the current market position correspond to?
Is there any trace of the current situation in which the US stock market is rising and BTC is falling?
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 showed obvious decline and reached an important support level.
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.
How to 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 been affected by the selling pressure from the German government and Mentougou recently. 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.
