The S&P 500 has seen a substantial increase of over 16% this year, while Bitcoin has faced a downturn of 3%. This marks the first instance since 2014 in which stock prices have surged while the cryptocurrency has struggled, according to data from Bloomberg. Historically, Bitcoin has aligned closely with other risk assets, even weathering previous market downturns related to cryptocurrencies. The current divergence is surprising to many, especially given expectations that Bitcoin would flourish under a potential return of Donald Trump to the White House, which many anticipated would lead to pro-crypto regulatory changes and increased institutional interest.
Earlier this year, Bitcoin reached a record high exceeding $126,000. However, a subsequent two-month decline—characterized by substantial forced liquidations and waning retail interest—resulted in a broader industry downturn centered around the digital asset. By the end of the week, Bitcoin had dropped significantly, falling as much as 4.4% to $88,135, which represents nearly a 30% decline from its October peak.
Traditionally, Bitcoin and stocks have shared a symbiotic relationship, particularly evident during the pandemic, which saw a favorable low-interest-rate environment encourage rallies across equities and speculative investments, including cryptocurrencies. Nonetheless, Bitcoin’s recent decoupling is stark against a backdrop where artificial intelligence stocks have surged, capital expenditures have increased, and investors have returned forcefully to the stock market. In contrast, safe-haven assets such as gold and silver are closing in on their record highs.
Matt Maley, chief market strategist at Miller Tabak + Co., observed that Bitcoin had primarily functioned as a momentum-driven asset over the past decade. When momentum was strongly positive, Bitcoin typically led the charge. This year, however, competing assets in the precious metals market have drawn away significant momentum-based inflows that would have otherwise benefitted Bitcoin.
Investor sentiment surrounding Bitcoin has rapidly declined. There has been a noticeable slowdown in inflows into Bitcoin exchange-traded funds (ETFs), major endorsements have reduced in frequency, and critical metrics—such as the duration of consecutive daily price increases—have indicated weakening momentum. Notably, Bitcoin’s recent record of just three consecutive days of price increases stands as the lowest for any year in which it has set new highs, indicating that recent gains have not proven sustainable.
Some industry experts, like Stephane Ouellette, the CEO and co-founder of FRNT Financial Inc. in Toronto, contend that Bitcoin’s current lackluster performance is a corrective response after having significantly outperformed other assets previously. He suggests that Bitcoin’s robust performance during Trump’s presidency allowed it to surpass the S&P 500, which now appears to be playing catch-up. As the dynamics of the market evolve, the future trajectory of both Bitcoin and traditional equities remains closely watched by investors.
