Historically, Bitcoin has mirrored risk assets like the S&P 500, reacting strongly to changes in liquidity and macroeconomic conditions. Interestingly, over the past six months, this relationship has shifted, with Bitcoin (BTC) sharply underperforming in contrast to equities and gold.
Key Insights
- Since 2022, Bitcoin’s usual alignment with equities has weakened.
- Cryptocurrency faced difficulties in terms of sentiment and liquidity while conventional markets remained stable
- Catch-up rallies in lagging assets are frequently sparked by such disconnects.
- Expected interest rate cuts could restore liquidity flows.
Bitcoin Breaks Away From Stocks
For years, Bitcoin has been a high-risk macro asset. When global liquidity expanded and investors leaned toward risk, crypto rallied in parallel with equities. Digital assets, on the other hand, corrected even harder when markets were uncertain.
Over the past decade, this pattern has been well-documented, with BTC frequently following the S&P 500 during major macroeconomic cycles.
Surprisingly, in the last six months, this correlation between BTC and equities has seen a massive shift.
The Historical Link Between Crypto and Equities
Since the day institutional capital started entering the crypto market, Bitcoin’s relationship with equities strengthened. Due to which hedge funds, asset managers, and macro traders added crypto exposure, Bitcoin gradually was treated as a liquidity-sensitive instrument.
During periods of low interest rates, e.g., 2021 and parts of 2024, cheap capital inflow triggered growth across risk markets. Tech stocks surged, venture funding accelerated, and Bitcoin and altcoins experienced strong bullish momentum.
The opposite dynamic was seen during tightening cycles. During the time of aggressive rate hikes by the Federal Reserve as a step to curb inflation, liquidity contracted. Following which, investors moved away from volatile assets, triggering declines across both stocks and crypto. One of the most dramatic examples occurred in late 2022.
The 2022 Collapse: Macro Pressure Meets Industry Shock
In November 2022, rising interest rates had dampened crypto sentiment. Additionally, the sudden FTX collapse sped up the decline to a level far greater than that of equities.
Bitcoin plunged to $15,700, marking one of the sharpest drawdowns of the cycle. While the stock market also struggled under macro pressure, crypto’s internal structural risks amplified the losses. This event demonstrated a crucial fact: even though BTC moves with equities, its volatility remains much higher.
At that point, despite the tightening financial conditions, the correlation between crypto and stocks remained intact, and both were declining.
Currently, the difference is visible not only in price direction but also in the sudden breakdown of that relationship.
A Rare Correlation Break
Over the past six months, both markets were in an unusual phase. Traditional assets, however, have remained relatively stable, but BTC has been a roller coaster.
Since late August:
- Gold climbed 51%, mainly due to safe-haven demand and macro uncertainty.
- The S&P 500 surged 7%, benefitting from resilient corporate earnings.
- Bitcoin, however, has dropped by 43%, diverging sharply from its historical pattern.
This marks the weakest correlation between Bitcoin and equities since the volatility of late 2022. Correlation breaks of this magnitude are rare and typically do not persist for long.
Financial markets are mainly driven by capital rotation. When one asset class temporarily disconnects from macro trends, it often hints at short-term sentiment imbalances rather than structural change.
In crypto’s case, several factors may explain this divergence:
- Profit-taking
- Reduced retail participation
- Liquidity challenges
- Delayed response to macro expectations
Meanwhile, traditional markets received stronger support, backed by institutional flows.
Is This Divergence Bullish for the Crypto Market?
Primarily, the current Bitcoin’s underperformance is very concerning. But historically, sharp disconnects from macro patterns have often preceded major catch-up moves.
When correlations break, markets rebalance over time. Capital rotation picks up toward undervalued assets once macro clarity improves.
Looking ahead, macro expectations may begin to shift. If interest rate cuts materialize, risk assets could once again benefit from expanding liquidity. Under such conditions, BTC may return to its historical tendency of tracking equities during growth cycles.
If that happens, the current gap between crypto and traditional markets can be unrealized upside rather than structural weakness.
Altcoins, which typically amplify Bitcoin’s directional moves, would likely follow the same trajectory.
