Bitcoin disengages from equities: historical correlation broken

Bitcoin has broken its long-standing correlation with the stock market, marking its first full-year divergence from equities in over a decade.

This shift highlights a growing disconnect between the world of cryptocurrencies and traditional financial markets, raising important questions about Bitcoin's actual role in the current economic cycle.

A Historic Market Decoupling

Bitcoin and equities have historically moved in tandem, a fact that has led many to classify them as correlated risk assets. However, this relationship appears to have fractured significantly.

According to data provided by Bloomberg, the S&P 500 index has experienced impressive growth this year, rising more than 16%, while Bitcoin has declined over the same period, losing 3%. This marked split is the first of its kind since back in 2014.

Such a sharp break is unusual even by crypto market standards, prompting renewed scrutiny of Bitcoin's position within global markets. This divergence belies expectations that regulatory optimism and growing institutional participation would automatically translate into sustained performance.

Bitcoin is heading for its first annual decoupling from equities in more than a decade, marking the first time since 2014 in which equity markets rise while cryptocurrencies fall, according to published by Short Squeez on X.

The situation is particularly surprising considering the broader financial context, characterised by a strong rally in AI-related stocks, an acceleration of capital spending and a return of investors to the stock market.

At the same time, traditional assets considered defensive are attracting attention, suggesting that investors are selectively reallocating capital rather than embracing risk across the board.

Crypto Specific Pressures and Weakened feeling

The current underperformance of Bitcoin has been materially exacerbated by industry-specific pressures crypto. These include large-scale forced liquidations and a sharp decline in retail participation.

Billions of liquidated positions have amplified the downward movements, turning what began as a correction into a full-blown retreat for the industry.

As these signals accumulated, market sentiment weakened, sparking a heated debate about the nature of this phase: is this a routine correction or a more significant structural change?

Normal Correction OR Structural Change?

Bitcoin has long acted as a momentum driven asset, but the breakout of a sustained upside suggests that leadership within the risk markets has shifted elsewhere.

Inflows into the ETF on Bitcoin have slowed, high-profile endorsements have become more subdued, and leading technical indicators signal renewed weakness.

Price action reflects this cooling of confidence. Bitcoin has struggled to regain momentum since its October peak, when it approached $126,000, and now hovers closer to $90,000.

This reinforces the perception that the current divergence is driven by declining conviction, rather than simply short-term volatility.

Despite the current misalignment, analysis over longer time horizons complicates the narrative. On a multi-year basis, Bitcoin continues to outperform equities, suggesting that the recent split may reflect the unwinding of past excess earnings, rather than a decisive break in the trend.

From this perspective, underperformance may still be in line with a normal pullback within a broader bull market cycle, although the contrast at the calendar year level is glaring.