In recent months, the performance of the S&P 500 has been quite eye-catching. Technology stocks have been advancing vigorously, pushing the index to climb steadily and set new records repeatedly. Especially this Tuesday, under the strong boost of AI and large technology company earnings reports, the S&P 500 index soared to 5,796.80 points, once again setting a historical record, and the market was filled with optimistic sentiment, with investors' joy almost overflowing the screen.
However, in stark contrast to the stock market's revelry is the fatigue of Bitcoin. As the "king" of the crypto world, Bitcoin's performance has been lackluster. The price fluctuates between $50,000 and $65,000, far from the peak period of the "sky-high" bull market. Especially after the CPI data released by the Federal Reserve last night, Bitcoin experienced significant volatility. The data showed that the U.S. September unadjusted CPI annual rate recorded 2.4%, marking the sixth consecutive month of decline and hitting a new low since February 2021. After the release of this data, the S&P 500 index slightly fell during the session but quickly rebounded at the end, with the index almost unaffected. However, the price of Bitcoin once fell below $59,000.
The macro market liquidity remains abundant, and economic data is also bright, boosting investor confidence, but Bitcoin's price has not rebounded in sync. It should be noted that at one time, Bitcoin and the S&P 500 were almost in sync like "Siamese twins," with every rise and fall seemingly agreed upon. Now, the S&P 500 is galloping ahead, while Bitcoin is stuck in place, caught in a wide range of fluctuations. What exactly has happened behind the scenes? Today, let's delve into the reasons behind this.
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2020-2022: The Honeymoon Period of Bitcoin and the S&P 500
According to Newhedge data, during the period from 2020 to 2022, the 30-day rolling correlation coefficient between Bitcoin and the S&P 500 index exceeded 0.6 on multiple occasions, showing a significant positive correlation. Everyone was dancing to the same rhythm.
Pandemic Aftermath: Risk Assets Party Together
Speaking of the honeymoon period between Bitcoin and the S&P 500, it dates back to the post-pandemic era. In 2020, the global pandemic broke out, causing a major economic shutdown and panic in the capital market. Consequently, central banks around the world opened the floodgates, with the Federal Reserve directly lowering interest rates to near zero, implementing one hand of easy policy and the other hand buying bonds in large quantities, resulting in a "surging" amount of money in the market.
When liquidity is abundant, risk assets benefit the most. Under the Federal Reserve's "easy money" policy, the S&P 500 rebounded from the low point of the U.S. stock market circuit break in March 2020 and reached new highs repeatedly in 2021. On the other side, Bitcoin also rose with the capital tide, from a minimum of $3,800 to $64,000, and even touched a historical high of $69,000 by the end of the year. At that time, Bitcoin and the S&P 500 were like a pair of brothers, dancing to the same rhythm whether it was the Federal Reserve's decisions or changes in investor sentiment.
Investor Sentiment and Market Risk Preference: Risk Preference Rises TogetherDuring that period, there was a strong expectation for a global economic recovery, and investors' risk appetite was soaring. In the market, everyone was shouting "buy," whether it was the stock market, real estate market, or the cryptocurrency market, all were sought-after. Everyone was looking for high-yield targets, and Bitcoin and the S&P 500 became the sweet cakes of capital. The more fiercely the Federal Reserve's "printing press" operated, the higher the prices of risk assets soared.
The S&P 500 and Bitcoin enjoyed the nourishment of this wave of funds in this market atmosphere. Whether it was the Wall Street giants or retail investors, everyone had some money in hand and wanted to take a gamble in risk assets.
Institutional capital's boost: From Wall Street to Bitcoin, capital blossoms on both sides
Between 2020 and 2021, institutional investors also began to enter the Bitcoin market. At that time, Grayscale Trust almost became a synonym for institutional purchases of Bitcoin, and MicroStrategy was in a "go all-in" mode, treating Bitcoin as a corporate asset. Tesla also bought Bitcoin at one point, setting off a wave of corporate coin purchases.
These institutional funds were not only major players in the traditional stock market, but after entering the Bitcoin market, they also provided a basis for the resonance between Bitcoin prices and the S&P 500 index. The dual layout of capital promoted the linkage effect between the two.
2023-2024: Why has it become "ice and fire" now?
Especially in the past six months, Bitcoin has been fluctuating widely between 50,000 and 70,000 US dollars, while the corresponding S&P index has been rising for six consecutive months.
Block data shows that from June to August, the 30-day Pearson correlation between Bitcoin and the S&P 500 index dropped to -0.84 and -0.82, the lowest since November 2023. The original "Siamese twins" are now going their separate ways.
The Federal Reserve raises interest rates, and liquidity is reeled in: who is swimming naked when the tide goes out?As time rolled into 2022, the market narrative took a turn. The Federal Reserve, in its fight against inflation, began gradually raising interest rates starting in March 2022, shifting market liquidity from a "flood" to a "drizzle." At this point, it became apparent that while the S&P 500 could still swim as the tide receded, Bitcoin was struggling a bit.
The Fed's rate hike policy directly pushed up the dollar interest rates, increasing the cost of capital and tightening the "faucet" of the capital market. For large companies in the stock market, especially the tech giants in the S&P 500, this environment turned out to be a "positive" because they had solid cash flow and profits to support them. The tech stock craze was reignited, with constant good news from AI, cloud computing, and other tracks, boosting market confidence.
What about Bitcoin? As a highly volatile asset, facing the interest rate hike cycle, market funds began to be cautious, and the buying momentum was clearly insufficient. With less liquidity and reduced hot money, Bitcoin naturally could no longer take off as easily as before.
Regulatory crackdown and policy direction: Continuous regulatory thunder, market confidence shaken
Let's take a look at the regulatory card. In recent years, over the past two years, the global regulatory intensity on cryptocurrencies has been continuously increasing. Policies of various countries are like the Sword of Damocles hanging over the market, constantly threatening its stability. Major economies such as the United States, Europe, and Asia have all increased their regulatory efforts on the cryptocurrency market, attempting to curb the unregulated expansion and potential financial risks.
China had already completely banned cryptocurrency mining and ICOs in 2018, and in 2021, it further cleared out exchanges. The U.S. SEC has repeatedly slammed on the brakes regarding the approval of Bitcoin ETFs. In 2023, the SEC issued huge fines to Binance, with penalty amounts reaching as high as $4.3 billion. Binance's founder, Zhao Changpeng (CZ), was also arrested and imprisoned but has since been released.
At the same time, Europe's MiCA regulation (Markets in Crypto-Assets regulation) has officially taken effect, standardizing the issuance and trading behavior of cryptocurrencies, and significantly increasing the compliance costs for cryptocurrency enterprises.
Faced with this regulatory storm, many investors who were optimistic about the cryptocurrency market had to re-evaluate the risks. The hot money that was originally flowing into cryptocurrencies began to flow back to the stock market, which has more transparent regulations. In comparison, large tech stocks in the S&P 500, with clearer legal frameworks and profit models, became a safe haven for funds.
AI, tech stocks take the spotlight: The cryptocurrency market's cold wave
In 2023 and 2024, AI became the "new favorite" of the capital market. Generative AI exploded in popularity, with tech giants continuously launching new AI technologies, products, and applications. The market's expectations for future technology were at an all-time high, and funds poured into the tech track. Under these circumstances, the S&P 500 once again welcomed an upward trend, setting new records repeatedly.On the Bitcoin front, despite technological advancements such as Layer 2 and the Lightning Network, they have not garnered as much market attention as the AI track. Investors are more inclined to bet their funds on tech companies that can bring faster commercial returns, rather than on Bitcoin, which is relatively mature but lacks explosive growth opportunities.
Bitcoin ETF Approved, Whales and Institutions Dominate the Market, but Altcoins are Neglected
According to data from TradingView, Bitcoin's market dominance has risen to over 57%, while the total market capitalization share of altcoins has plummeted. In contrast, during the peak of the 2021 bull market, the market share of altcoins once approached 70%.
In January 2024, Bitcoin ETFs finally received approval from U.S. regulatory authorities. This development undoubtedly injected fresh blood into the market. The launch of ETFs opened the door for traditional financial institutions to enter the Bitcoin market, with whales and institutions becoming the main drivers of market volatility.
However, the capital preferences of institutions are very clear: they favor Bitcoin with a large market cap and strong liquidity over the higher-risk, less liquid altcoins in the market. This has directly led to a significant increase in Bitcoin's market dominance, while the liquidity of altcoins has plummeted. Interest in altcoins is gradually fading, and the daily trading volume of many small coins has fallen into a state of depression.
The rise in Bitcoin's dominance, which seems to be a boon for Bitcoin, actually limits the diversified development of the entire cryptocurrency market. The once competitive crypto world now only has Bitcoin, the "giant," leading the way, with the fate of other altcoins significantly weakened. The decline in liquidity makes the market prospects for altcoins even bleaker, and Bitcoin's strength alone is unlikely to lead the entire market out of the doldrums.
Whenever there is a slight movement in the market, the price of Bitcoin follows with violent fluctuations. This volatility is precisely contrary to the steady upward rhythm of the S&P 500. As a result, we see that the performance of Bitcoin and the S&P 500 in market fluctuations is becoming increasingly inconsistent.
The Future Destiny: Will Bitcoin and the S&P 500 Join Hands Again?
The financial market is like a never-ending chess game, where past rules may not necessarily apply to the future. The changes in the correlation between Bitcoin and the S&P 500 reflect the shifts in capital flows, regulatory environments, and market preferences. Behind the S&P 500's狂欢 is the AI wave's tech giants leading the trend; while Bitcoin, after welcoming the dawn of ETFs, faces the loneliness of going it alone.In the future, Bitcoin may once again be regarded as a safe-haven "digital gold," serving as a harbor for capital in a turbulent world; it may also continue to oscillate between high volatility and regulatory challenges. Whether it can walk side by side with traditional markets again or continue to forge its own path depends on the attitudes of capital, the pace of innovation, and every choice we make in the unpredictable market.