Exploring the Divergence Phenomenon Between BTC and NASDAQ Index

Recently, there has been a divergence between Bitcoin and the Nasdaq index. While the Nasdaq continues to hit new highs, Bitcoin has been on a downward trend, leading to a significant decline in the overall cryptocurrency market. This contradicts the traditional perception of a positive correlation between the two. So, what is the logic behind this? Has there been a similar situation in history? This article will attempt to explore the strength and changes in correlation between the two over different time dimensions by reviewing the current and previous bull markets.

In fact, Bitcoin does not have a fixed coefficient positive correlation with US stocks, but shows different degrees of correlation at different stages of the cycle. Looking back at the last bull market and this bull market, several patterns can be observed:

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

2. The process of increase for both is different:

   • The Nasdaq index has a relatively stable upward momentum, represented on the candlestick chart as a line with a nearly fixed slope.
   • Bitcoin is different, its increase resembles exponential growth more closely. The initial rate of increase is relatively slow, followed by a rapid surge after a certain point in time. Interestingly, the timing of this accelerating upward "inflection point" corresponds to the moment when the NASDAQ index stabilizes after its first pullback during the upward phase.

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

So, what stage does the current position of the market correspond to in history? Is there a traceable pattern to the situation where the US stock market is rising while Bitcoin is falling?

It can be observed that during most of the two bull markets, Bitcoin maintained a positive correlation with U.S. stocks, although there were phases of negative correlation, they were not dominant. In the last bull market, after Bitcoin peaked for the first time, the Nasdaq 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 place.

So, what will the market direction be moving forward? How long will the divergence between Bitcoin and the Nasdaq continue? How will the divergence recover? From the perspectives of time and strength:

1. In the last bull market, the divergence between the two did not last long, with a duration of about 9 weeks on the weekly chart, after which it returned to a positive correlation.

2. In the last bull market, the point at which the two regained positive correlation was when Bitcoin showed a significant decline in daily candlestick strength and reached an important support level.

If we measure by historical standards, the current market has not yet fully met the conditions for divergence recovery, and we need to wait for more K-line information. So how can we logically understand this special common trend that appeared during both bull markets?

Whether it is Bitcoin, gold, or U.S. stocks, they are all constrained by the same macroeconomic environment, influenced by factors such as financial liquidity and the yield on risk-free assets. Bitcoin, as a more resilient asset class, can experience strong surges in the early stages of a bull market, significantly outperforming U.S. stocks. However, extremes will eventually reverse; there is no perpetual strength. After the main rise, Bitcoin may again show weakness compared to U.S. stocks, which is similar to the relationship between altcoins and Bitcoin.

From another perspective, 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 fuel or momentum for the increase may become exhausted, making it difficult to sustain a collective rise across all asset categories. As a result, there may be situations where some assets rise while others fall.

From an event-driven perspective, the market has recently been influenced by selling pressure from the German government and a certain mining company. Regardless of how this segment of the trend is interpreted, Bitcoin will ultimately return to a positive correlation with the US stock market after sufficient adjustment.