Bitcoin’s recent performance has outpaced the broader market, but an analyst warns that its renewed correlation with U.S. stocks could introduce short-term risks.
Since Donald Trump’s election victory on November 5, Bitcoin (BTC) has surged by approximately 47%, significantly outperforming the S&P 500, which has gained just 4%. Trump’s pro-crypto stance, coupled with the Republican-controlled Senate and House of Representatives, has added to the optimism surrounding bitcoin and the broader crypto market, as potential crypto-related laws are likely to pass.
However, Andre Dragosch, Head of Research at Bitwise in Europe, shared his insights exclusively with CoinDesk, shedding light on factors contributing to the divergence between bitcoin and traditional stocks.
Dragosch attributes the recent performance of U.S. stocks to the Federal Reserve’s hawkish stance on interest rates. He explained, “The Fed’s revised rate-cut expectations for 2025—just two cuts—are less than initially projected, which has negatively impacted the stock market.”
Meanwhile, the U.S. Dollar Index (DXY), which tracks the dollar’s strength against a basket of major currencies, has risen by 5%, adding additional pressure on risk assets, which would traditionally include bitcoin. Despite this, Dragosch notes that bitcoin has held up relatively well, supported by factors like the ongoing supply shortage on exchanges. “Bitcoin exchange balances have continued to decrease, even amid profit-taking,” he explained.
However, in recent weeks, Bitcoin and the S&P 500 have started moving in closer alignment, with their correlation reaching 0.88 over the last 20-day moving average, according to TradingView data. While on-chain metrics are expected to provide strong support for bitcoin until mid-2025, Dragosch cautions that the deteriorating macroeconomic landscape could pose short-term risks, particularly due to the asset’s rising correlation with traditional stocks.
