Bitcoin is again behaving differently from the traditional risk asset complex, and the recent divergence may send an important signal.
Negative correlation between bitcoin and the Nasdaq 100 has often been in line with market bottoms for bitcoin, and the current setup is similar to several previous turning points.
This is now the fourth time in the past five years that the two assets have moved into negative territory on a 20-day correlation coefficient that currently stands at -0.43. The pattern is also similar to the negative correlation periods seen in summer 2021 and August 2024, both of which coincided with meaningful bitcoin lows. Although bitcoin is often described as a leveraged higher beta technology asset that tends to outperform at risk on periods and underperform during risk off periods, the current divergence is notable.
Bitcoin fell as much as 36% from its October high. By comparison, the Nasdaq 100 saw a maximum draw of just 8% and is now trading just 2% below its record high. Bitcoin has yet to recover in the same way that the broader tech sector has, currently sitting 27% below its all-time high.
The earlier negative correlation case unfolded during the unwinding of the yen carry trade, pushing bitcoin down to around $49,000, a move that ultimately marked a local bottom. Before that, negative correlation appeared in September 2023 when bitcoin traded just below $30,000, followed by a rally to $40,000 by the end of the year. The first instance occurred in May 2021 during China’s mining ban, when bitcoin fell from $60,000 to $30,000 before recovering to new highs in November 2021.
Taken together, these episodes show that negative correlation between bitcoin and the Nasdaq 100 has often occurred near significant turning points in bitcoin. While the current setup suggests another bottom may form, the timing of any rebound remains uncertain.
