Bitcoin Shows Divergence from U.S. Equities Amid Market Volatility
Amid market fluctuations on Wednesday, Bitcoin (BTC) and U.S. equities displayed signs of a weakening correlation, catching the attention of investors.
In a well-diversified portfolio, assets typically show minimal correlation with each other. For instance, gold has continued to hit all-time highs this year, setting 12 daily records, underscoring a disconnect from the performance of U.S. equities.
Historically, Bitcoin has been seen as a leveraged play on the Nasdaq 100. However, recent trends suggest this relationship may be losing its strength.
A key example can be seen with BlackRock’s iShares Bitcoin Trust (IBIT), which only trades during U.S. market hours. On Wednesday, IBIT closed up by 0.46%, while the Nasdaq 100 plunged more than 3%, at one point dropping by as much as 4.5%, marking one of its largest point declines in history.
Meanwhile, MicroStrategy (MSTR), a Bitcoin-leveraged asset within the Invesco QQQ Trust (QQQ), ended the day up 0.30%. This occurred even as the major tech stocks known as the “Magnificent Seven” all closed in the red, further highlighting the growing divergence between Bitcoin and U.S. equities.
Throughout the day, the correlation between Bitcoin and the Nasdaq fluctuated. During Fed Chair Jerome Powell’s remarks, both Bitcoin and the Nasdaq dipped in unison. However, Bitcoin later rebounded, rising above $84,000, while the Nasdaq continued to hit new intraday lows before making a modest recovery into the close.
Powell’s comments took on a more hawkish tone than expected, raising concerns about inflation driven by tariff uncertainties and hikes, which he described as an “evolving risk.” Short-term inflation expectations also rose in response.
The market was particularly rattled by Powell’s response to the question of whether the Federal Reserve would intervene to stabilize the stock market during downturns. When asked if there was a “Fed put,” Powell’s definitive reply was, “I’m going to say no.”
The “Fed put” refers to a longstanding market theory suggesting the Fed will act as a backstop during sharp market declines. Bitcoin, being a bearer asset, inherently lacks such a safety net. The question now remains: Was Powell merely bluffing, or is the Fed truly stepping away from its traditional role as the market’s backstop?
