Recently, the NASDAQ index has been hitting new highs while BTC has experienced a significant decline, diverging from their previously perceived positive correlation. This article reviews the current and previous bull markets, exploring the strength, variability, and changes in correlation between these two assets at different times.
In fact, BTC and the NASDAQ index do not always exhibit a fixed positive correlation coefficient but rather show varying degrees of correlation across different phases of the cycle. Examining the previous and current bull markets reveals several patterns:
1. The initial starting point and final endpoint of their respective rallies align perfectly in terms of time.
2. The processes of their rallies differ: the NASDAQ demonstrates a relatively steady upward trajectory resembling a straight line with a near-fixed slope on candlestick charts, whereas BTC shows growth closer to exponential growth, with a slower initial rise followed by a rapid surge at a certain point, coinciding with the first pullback stabilization phase of the NASDAQ’s uptrend.
3. Both BTC’s initial peaks corresponded to the second minor correction plateau of the NASDAQ’s uptrend phase.
Where does the current market position correspond to historically? Is there a precedent for the current scenario of rising NASDAQ and falling BTC? Throughout most of the previous bull markets, BTC and the NASDAQ maintained a positive correlation, with phases of negative correlation appearing but not dominating. In the last bull market, after BTC’s first peak, the NASDAQ continued to rise while BTC experienced a correction, resulting in a divergence of their trends (highlighted in the yellow box in the chart), similar to the current market situation where history repeats itself in the same place.
Regarding the future direction of the market, how long will the divergence between BTC and the NASDAQ continue, and how will it resolve? Historically, during the last bull market, such divergences lasted for approximately 9 weeks on a weekly basis before returning to a positive correlation (at the weekly level). In the last bull market, the point at which they restored positive correlation was when BTC exhibited clear signs of diminishing downward momentum at the daily candlestick level and reached crucial support levels.
By historical standards, the current market conditions have not yet fully met the criteria for restoring divergence. More candlestick information is needed to make a logical interpretation of this particular shared trend observed in both bull markets.
Regardless of whether it’s BTC, gold, or US stocks, they operate within similar macroeconomic environments and are influenced by factors such as financial liquidity and risk-free asset returns. BTC, being a more flexible asset type, can experience strong initial uptrends during bull markets, significantly outperforming US stocks. However, there’s no perpetual dominance; after the main rise, BTC may exhibit weakness compared to US stocks, paralleling the relationship between altcoins and BTC.
Another perspective is that during the main rise phase, market liquidity supports overall asset price increases. However, after reaching a certain level, the fuel or momentum for further rises may diminish, making it difficult to sustain collective asset price increases, potentially leading to situations where some assets rise while others fall.
From an event-driven perspective, recent market movements have been influenced by pressures from the German government and regulatory issues. Regardless of how this trend is interpreted, BTC is expected to eventually restore its positive correlation with US stocks once it adjusts sufficiently.
(Above are the personal views of the author, provided for reference only)