Bitcoin's Possible Surprise: Divergence from Equities Could Spark Next Bullish Phase

In recent months, a notable trend has emerged in the cryptocurrency market. Since early 2022, crypto assets have shown a strong correlation with equities, bucking the traditional narrative of cryptocurrencies as a separate asset class.

This unusual split between Bitcoin's decline and the rise of equities and gold has been further complicated by the surge in gold prices over the past two weeks, with the precious metal surging by 5.5%. In contrast, Bitcoin has experienced a 5.9% decline since August 22, 2021.

Despite this bearish trend, there are signs of potential recovery. Bitcoin's funding rates have cooled, and implied volatility has collapsed to historic lows, indicating a calmer market. This calm, however, is unlikely to last long, according to Matrixport, with Bitcoin hovering near the $106,000-$108,000 support range.

The current consolidation could serve as a foundation for the next big move, Matrixport suggests. This optimism is bolstered by the increased interest from institutional investors. Recently, Capital Group, a significant player in the financial world, has increased its Bitcoin holdings from $1 billion to $6 billion, signalling strong institutional confidence and a potential bullish reversal in the crypto markets.

Companies have also announced fresh allocations of nearly 9,800 BTC (about $1 billion), with renewed positions by mining and infrastructure firms like Cipher Mining, CleanSpark, and others. This institutional demand and support for Bitcoin is further reinforced by large daily ETF inflows of $553 million, despite short-term market volatility.

Traders should watch closely for a potential recovery, as the bearish shift in trend models for Bitcoin has been confirmed by the testing of the support range. Historically, dips of this magnitude have often set up strong rebounds for Bitcoin.

The S&P 500 has edged higher by 0.4% over the same period, but European bond markets are under stress. US debt issuance is accelerating rapidly, and options markets appear to be underpricing potential volatility.

Interestingly, Santiment, a crypto analytic platform, has detailed a notable bullish divergence between Bitcoin and traditional markets. Sustained divergences often set the stage for Bitcoin and altcoins to "catch up" with global market trends, according to Santiment.

Gold prices have surged to record highs, but Bitcoin briefly hit a new all-time high in mid-August. The current market conditions present a unique opportunity for investors to reconsider their crypto holdings, as the potential for a rebound remains high.

In conclusion, while the cryptocurrency market has faced challenges in recent months, the signs of institutional interest, bullish divergences, and historical trends suggest that a rebound could be on the horizon. Traders and investors should remain vigilant and watch for potential recovery signs in the coming weeks.

Bitcoin's Possible Surprise: Divergence from Equities Could Spark Next Bullish Phase