Author: Lisa, LD Capital
Recently, there has been a phenomenon of deviation between the trends of BTC and the Nasdaq. The Nasdaq continues to reach new highs while BTC declines, leading to a significant overall drop in the crypto market. This deviation from the traditional impression of a positive correlation between the Nasdaq and BTC raises questions about the underlying logic and whether similar situations have occurred in history. This article will attempt to explore the strength and changes in the 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 does not have a fixed coefficient of positive correlation. Instead, it varies in different stages of the market cycle. Several patterns can be observed when reviewing the previous and current bull markets:
The initial starting point and the final endpoint of the upward trends of both coincide in time dimension.
The processes of their upward trends differ. The Nasdaq's upward trend shows a relatively stable speed, resembling a straight line with a nearly fixed slope on the candlestick chart. On the other hand, BTC's upward trend is more akin to exponential growth. The initial rate of increase is relatively slow, followed by a rapid surge at a certain point in time. Interestingly, this inflection point of accelerated growth corresponds to the first stabilization of the Nasdaq's upward phase.
Each time BTC reaches its first peak, it corresponds to a small plateau in the second pullback phase of the Nasdaq's upward trend.
So, which stage in history does the current market position correspond to, and is there a precedent for the situation of US stocks rising while BTC falls?
It can be observed that during most of the two bull markets, BTC and US stocks maintained a positive correlation. Although there were phases of negative correlation, they were not dominant. In the previous bull market, after BTC's first peak, the Nasdaq continued to rise while BTC experienced a pullback, leading to a deviation in their trends (as shown in the yellow box in the image below). This situation is similar to the current market scenario, indicating a repetition of history in the same context.
As for the future market direction and the duration of the deviation between BTC and the Nasdaq, and how the deviation will be resolved, considering both time and intensity:
In the previous bull market, the deviation between the two did not last long, approximately 9 weeks on the weekly chart, before returning 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 a clear exhaustion of downward momentum on the daily chart and reached a significant support level.
If historical standards are used to measure the current market, it is evident that the conditions for the recovery of the deviation have not been fully met, 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 US stocks, they are all subject to the same macroeconomic environment, and their prices are influenced by factors such as financial liquidity and risk-free asset returns. As a more elastic asset class, BTC can experience a strong surge in the early stages of a bull market, outperforming US stocks by a large margin. However, nothing is perpetually strong. After the primary surge, it may weaken compared to US stocks, which is analogous to the relationship between altcoins and BTC.
From another perspective, during the primary surge phase, market liquidity is sufficient to support the overall rise in asset prices. However, after reaching a certain level of increase, the fuel or momentum for further upward movement may diminish, making it difficult to sustain a collective rise in asset classes, leading to a situation where some assets rise while others fall.
From an event-based perspective, the market has recently been affected by selling pressure from the German government and the crackdown in Mentougou. Regardless of how this trend is interpreted, BTC is expected to eventually restore its positive correlation with US stocks after a sufficient adjustment. (The above is the author's personal opinion and is for reference only.)
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