Fading Ties: Bitcoin and U.S. Equities Show Signs of Divergence

Bitcoin and U.S. Equities Show Signs of Divergence Amid Market Instability

On Wednesday, Bitcoin (BTC) and U.S. equities showed early indications of a decoupling, drawing attention to a potential shift in their long-standing correlation as market volatility rises.

In a typical diversified portfolio, assets are expected to have little to no correlation with one another. For example, gold has continued its upward trajectory, setting 12 new daily records this year and signaling a clear divergence from the performance of U.S. equities.

Bitcoin, once considered closely tied to the Nasdaq 100, is now showing signs of distancing itself from that relationship.

An illustrative example of this shift can be seen in BlackRock’s iShares Bitcoin Trust (IBIT), which trades only during U.S. market hours. While the Nasdaq 100 experienced a dramatic drop of over 3%, even dipping as much as 4.5% at one point, IBIT finished the day up by 0.46%.

Likewise, MicroStrategy (MSTR), a Bitcoin-leveraged stock within the Invesco QQQ Trust (QQQ), closed up by 0.30%, even as the tech-heavy Nasdaq saw its top stocks, known as the “Magnificent Seven,” all finish in the red. This further underlines the growing divergence between Bitcoin and traditional equities.

Throughout the day, the correlation between Bitcoin and the Nasdaq fluctuated. When Federal Reserve Chairman Jerome Powell spoke, both assets dropped together. However, Bitcoin quickly recovered, climbing back above $84,000, while the Nasdaq continued to struggle before showing a modest recovery by the end of the trading session.

Powell’s comments were notably hawkish, citing inflation concerns fueled by tariff uncertainties and potential hikes, which he described as “evolving risks.” As a result, short-term inflation expectations have also risen.

What particularly rattled markets was Powell’s response to the question of whether the Federal Reserve would act to stabilize the stock market during downturns. His firm reply was, “I’m going to say no.”

The “Fed put” is a longstanding theory suggesting the Fed would step in to prevent severe market declines, offering a safety net that Bitcoin, as a non-backed asset, lacks. The key question now is whether Powell’s statement was a sign that the Fed is truly moving away from its traditional role as a market backstop.