Bitcoin and Nasdaq Divergence: Historical Reappearance or New Normal

Recently, Bitcoin has diverged from the Nasdaq index, which contradicts the traditional perception of a positive correlation between the two. The Nasdaq index continues to reach new highs, while the price of Bitcoin is declining, dragging down the overall Crypto Assets market significantly. What is the logic behind this phenomenon? Has a similar situation occurred in history? This article will explore the changes in correlation between the two over different time dimensions by reviewing the current and previous bull runs.

In fact, Bitcoin does not always maintain a fixed coefficient positive correlation with the US stock market, but rather presents varying degrees of correlation at different stages of the market cycle. Looking back at the previous bull run and the current bull run, we can observe the following patterns:

1. The starting and ending points of the rise for both are highly consistent in terms of the time dimension.

2. There are differences in the upward process of the two.

   • The Nasdaq index has a relatively stable rise, showing a nearly fixed slope line on the candlestick chart.
   • The rise of Bitcoin is more akin to exponential growth, with a slower initial rate of increase, followed by a rapid surge after a certain point in time. Interestingly, this "turning point" of accelerated growth often corresponds to the timing of the first pullback stabilization during the upward phase of the Nasdaq index.

3. The first peak of Bitcoin usually corresponds to the second pullback small platform during the rising phase of the Nasdaq index.

So, what stage in history does the current market position correspond to? Is there a traceable correlation between the rise of the US stock market and the fall of Bitcoin?

Observations have found that during most of the two bull runs, Bitcoin maintained a positive correlation with U.S. stocks, although there were also phases of negative correlation, but they were not dominant. In the last bull run, after Bitcoin peaked for the first time, the Nasdaq index continued to rise, while Bitcoin corrected, leading to a divergence in their trends. This is similar to the current market situation, as history seems to be repeating itself in the same position.

Regarding the future market direction, how long the divergence between Bitcoin and the Nasdaq index will last, and how it can be restored, we can analyze from two perspectives: time and intensity.

1. In the last bull run, the divergence between the two lasted for a shorter duration, approximately 9 weeks on a weekly basis, and then returned to a positive correlation.

2. In the last bull run, the point in time when the two regained positive correlation was when Bitcoin showed a significant exhaustion of downward momentum on the daily chart and reached an important support level.

If measured by historical standards, the current market has not yet fully met the conditions for divergence recovery, and more K-line information needs to be awaited. From a logical perspective, the occurrence of this special common trend during the two bull runs may have the following reasons:

Bitcoin, gold, and the macro environment of US stocks are similar, with prices influenced by factors such as financial liquidity and risk-free asset yields. As a more resilient asset class, Bitcoin can experience a strong rally in the early stages of a bull run, significantly outperforming US stocks. However, extremes must reverse; there is no perpetual strength, and after the main rally, a situation may arise where it underperforms US stocks, which is akin to the relationship between altcoins and Bitcoin.

On the other hand, during the main rising phase, the market liquidity is sufficient to support the overall rise in asset prices. However, after rising to a certain extent, the upward momentum may be exhausted, making it difficult to support a collective rise in all categories of assets, which may lead to a situation where some assets rise while others fall.

From the perspective of event factors, the recent market has been affected by selling pressure from the German government and some institutions. Regardless of how this trend is interpreted, after sufficient adjustment, Bitcoin is likely to restore its positive correlation with the US stock market.