This article will attempt to explore the strength and changes of the correlation between the current and previous bull markets in different time dimensions.
Author: Lisa, LD Capital
Recently, there has been a phenomenon of deviation between the trends of BTC and the Nasdaq. While the Nasdaq continues to reach new highs, BTC has been declining, leading to a significant drop in the overall crypto market. This contradicts the traditional impression that the Nasdaq and BTC are positively correlated. What is the logic behind this, and have similar situations occurred in history? This article will attempt to explore the strength and changes of the correlation between the current and previous bull markets in different time dimensions.
In fact, BTC and the US stock market do not have a fixed coefficient of positive correlation, but rather have different degrees of correlation in different stages of the cycle. Reviewing the previous bull market and the current bull market reveals several patterns:
The initial starting point and the final endpoint of the rise of both are completely consistent in the time dimension
(Previous round starting point 2020/3 & previous round peak 2021/11 & current round starting point 2023/1)
The processes of the rise of both are different
The Nasdaq's rise is relatively stable, showing a nearly constant slope on the candlestick chart.
BTC, on the other hand, exhibits a different pattern. Its rise process is closer to exponential growth, with a relatively slow initial rate of increase, followed by a rapid surge at a certain point in time. Coincidentally, the time of this accelerated rise corresponds to the first stabilization of the Nasdaq during its rise.
(2020/10 & 2023/10)
The first peak of BTC also corresponds to the second small platform of the Nasdaq's rise stage
(2021/4 & 2024/3)
So, which stage in history does the current market position correspond to, and is there a precedent for the situation of the US stock market 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 periods of negative correlation appearing but not dominating. In the previous bull market, after the first peak of BTC, the Nasdaq continued to rise while BTC pulled back, leading to a deviation in the trends of the two (as shown in the yellow box in the image below), which is similar to the current market situation. History is repeating itself in the same place once again.
As for the future market direction, how long will the deviation between BTC and the Nasdaq continue, and how will the deviation be resolved? From the perspectives of time and intensity:
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).
In the previous bull market, the point at which the two resumed their positive correlation was when BTC showed obvious exhaustion of downward momentum and reached an important support level on the daily chart.
If measured by historical standards, it can be seen that the current market does not yet fully meet the conditions for the deviation to be resolved, and more candlestick information is needed. So, how can we logically understand this special common trend that has appeared in both bull markets?
Regardless of whether it is BTC, gold, or the US stock market, they are all subject to the same macro environment, and prices are influenced by factors such as financial liquidity and risk-free asset yields. As a more resilient asset class, BTC can experience a strong surge in the early stages of a bull market, significantly outperforming the US stock market. However, there is no eternal strength, and after the primary rise, it may weaken compared to the US stock market, which is reminiscent of the relationship between altcoins and BTC.
From another perspective, during the primary rise stage, market liquidity is sufficient to support the overall rise in asset prices. However, after rising to a certain extent, the fuel or momentum for the rise becomes exhausted, making it difficult to support the collective rise of all asset categories, which may lead to a situation where one rises while the other falls.
From the perspective of event-driven factors, the market has recently been affected by selling pressure from the German government and the Mentougou district. Regardless of how this trend is interpreted, BTC will eventually return to a positive correlation with the US stock market after a sufficient adjustment. (The above is the author's personal opinion and is for reference only)
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