Bybit x Block Scholes: The Bitcoin Rally May Not Yet Be Over

Historical Analysis of the Bitcoin Cycle Suggests the Rally May Not Be Over

Market Cycles Definition and Composition

From early beginnings in 2009, when the first Bitcoin block was mined, crypto has grown into a multi-trillion-dollar asset class with a credible chance for widespread institutional adoption. However, its path to get there hasn’t been smooth, and crypto assets have earned well-deserved notoriety for high volatility. Euphoric bull runs to new all-time high price levels are consistently followed by meteoric crashes before prices consolidate, and begin to rally to new highs once more.

In those 15 years of price action, periods of rises and falls have shown an uncanny pattern of repetition. Looking at BTC’s historical price data, we can identify three historical cycles of strikingly similar price action in BTC: recovery, boom and bust. We’ll use the change in price action between those periods to guide our analysis of historical bull runs.

First, by plotting BTC’s spot price history on a log scale in order to better visualize its price action across all historical periods, we define a bull run as the period of time between the lowest trough and highest peak of each cycle. This definition can only be defined retrospectively, as it requires knowledge of the “top” of the cycle, but will nevertheless prove useful to clarify the exact periods over which BTC’s spot price has rallied.

Segmenting Bitcoin’s history in this way reveals three distinct historical periods of persistently and extremely bullish price rallies that we’ll use to define each bull run: 2012–2014, 2015–2018 and 2019–2022. The final period of the price rally is the current one that began in late 2022, but we haven’t yet assigned an end date to it.

The length of time between the lowest trough and the highest peak in each case is relatively consistent, with the last two lasting close to 1,060 days and the first one just 742 days, for an average of 956 days. 

Note that if we consider the post-FTX BTC low of $15.8K in November 2022 as the beginning of the current “cycle,” then we’re currently 624 days into the latest bull run and have recorded a trough-to-all-time-high-peak run of 3.5x. That’s far lower than the 20x trough-to-peak recorded in the last cycle from 2019–2022, but the historical average (of a sparse data set of just three historical periods) suggests that there are still around 350 days remaining to best that.

However, if the March all-time high of $73K was the peak that signals that the current bull run is over, it would mean the current cycle is much shorter than previous ones. This could indicate that the market is maturing, leading to shorter cycles and less volatility, and therefore, that the magnitude of the sell-off will be smaller than in previous cycles.

However, while only just besting the previous all-time high of $69K (touched in November 2021), the lackluster returns for this cycle are somewhat to be expected. A closer look at the chart above reveals that the super-exponential price increases recorded during each bull run period are indeed becoming smaller, and that beating a 4x return may be less likely than in previous cycles. Trough-to-top returns have been getting smaller with each bull run (553x, 97x, 20x). Adding a 4x to that list is another data point in a pattern that could be read as an approximately 5x decrease in the trough-to-peak returns achieved in each subsequent bull run.

Those are the bull runs. Can we break down each cycle any further? The distinct phases of each cycle (and their almost predictable natures) are much clearer when we overlay the history of BTC’s drawdowns from an all-time high (ATH). This indicator shows a clear picture of where we are in a historical cycle relative to the price level, and also gives us a more robust method of classifying the distinct phases of each cycle.

Here, on each day, we show the percentage loss in BTC’s value from its highest value recorded up until that timestamp. When BTC trades at an ATH price, the drawdown recorded is 0%, meaning that values persistently near the top of the chart indicate the BTC spot price pushing higher into uncharted territory. 

Above, the cyclical nature starts to look a little bit spooky. In each historical cycle, BTC has followed a consistent pattern of rallying to match its previous ATH price, pushing past it to record new record highs before crashing by around 80% per year after its eventual peak. In the first and third cycles, spot prices recorded twin peaks of all-time highs with intermediate sell-offs of close to 50%.

Using the drawdown chart above, we can define three distinct periods in each historical cycle that span the entire history of price action. 

• First, a period of recovery in price to the ATH value reached in the preceding cycle’s peak. 
• Second, a period of euphoric rally to new all-time highs. 
• Finally, a swift and sudden correction to just a fifth of the value hit at its peak. 

If the cyclic nature continues, then BTC currently trades somewhere after the first period of recovery, having recorded a new all-time high in mid-March 2024 of $73.1K, indicating that the current drawdown doesn’t mean that the current bull rally is definitely over.

Distinct Phases of a Bull Run

Up to this point, we’ve focused on the cyclic nature of crypto solely through the lens of Bitcoin’s price action. There's a good reason for that: Bitcoin has historically dominated the crypto market asset class by market cap. But what is its relationship to other crypto assets? How have Bitcoin and other assets behaved in historical bull runs?

Unsurprisingly, given the strong intra-asset correlation between crypto assets, the trajectory of the total market capitalization of all crypto tokens closely tracks that of BTC’s spot price. This can be seen in the chart below, which shows the total market caps of the two largest crypto assets, BTC and ETH, as well as those of all stablecoins and other crypto-currencies (or “altcoins”). The total market cap has shown local peaks in correspondence with BTC’s all-time highs.

However, we can already see trends emerging in the relative size of each asset in each period. The early days of crypto trading were defined by Bitcoin dominance before the market cap of altcoins exploded at the height of the rally in early 2018. Ether’s prevalence grew steadily, coming to prominence as the second largest crypto asset only during the second part of the rally in 2021.

This is a theme we’ll see again later in this analysis when we examine the meme coin and meme stock craze that joined the 2021 rally. But how common is the capital rotation effect in crypto? Do we see evidence that traders routinely take and reinvest profits into other tokens?

Using the drawdown chart in the section above to classify each historical cycle into sub-cycles (New ATHs, Crash and Recovery), we can examine how the intra-asset market structure changes and defines the nature of a crypto bull run. To do this, we must look at each asset's proportion of the total, non-stablecoin market cap.

In doing so, we see the same cyclic nature that we saw in our previous analyses. In each historical case, the altcoin market cap has risen during the run to new BTC ATHs, and peaked following Bitcoin’s subsequent crash. During a recovery rally from the bottom of a bear run back to the previous ATH, BTC’s market share has remained relatively constant, or increased slightly. 

However, halfway through the first historical bull run that we’re considering, in 2016, Ethereum emerged as the second-largest crypto asset — not by taking market share away from other altcoins or BTC, but by growing independently. Almost as soon as BTC crossed above its previous all-time high of $1.18K on March 2, 2017, the market share of Ethereum and other altcoins exploded to up to 60% of the total market. This is evidence of traders with long positions in BTC taking profit and reinvesting it into other crypto assets in the hope of catching the lagging rallies. The rotation of capital goes some way toward explaining the intermittent drawdown of up to 33% that we saw in this post-recovery period.

This is a pattern that was repeated in the following cycle: new all-time highs for BTC followed by a near-immediate increase in the market cap of Ethereum and altcoins that take share away from Bitcoin, before a crash sees the market cap of all assets dwindle. For many traders, the crossing of the previous ATH again appears to be a significant psychological trigger to begin diversifying a crypto asset portfolio. 

As with the previous cycle, the most recent bull run (throughout 2023 and into the first part of 2024) saw an increase in BTC’s market share, as we would expect from historical precedent — and the fact that it was BTC alone that received approval for Spot ETFs. But for the first time in our analyses, we get the sense that something is different this time around, as March’s push past the previous ATH doesn’t result in a resurgence in the dominance of altcoins.

This time, BTC’s crossing of its previous ATH ($69K, achieved in November 2021) hasn’t resulted in an increase in the market share of ETH or other altcoins. Neither has BTC continued to push to many new highs, instead trading in a tight range for the past four months.

Do Macroeconomic Conditions Explain Price Action? Bitcoin Tends to Rally When Following an Abrupt Surge in Market Liquidity

For much of its history, BTC has traded nearly independently of headline macro-assets, even holding little correlation to the strength of the dollar in which it’s valued. This is clear from the chart below, which shows the rolling correlation between BTC and a selection of assets that are historically sensitive to macroeconomic conditions, as well as the DXY, an index that tracks the strength of the U.S. dollar relative to a selection of other currencies.

The correlation structure to other macro-sensitive assets changed dramatically and decisively in the Covid crash of March 2020. Before that event, BTC’s co-movement with gold, commodities, the U.S. dollar and equities was fleeting and variable. But during the subsequent rush for cash, almost all assets were correlated in their synchronized sell-off and negatively correlated to the dollar. Crypto assets were no different, and the crash resulted in a drawdown of over 70% from previous highs.

Since then, BTC has first retained its high positive correlation to risky assets (shown by correlation to the S&P 500 index in red in the chart above), and strong negative correlation to the U.S. dollar. Bitcoin traded most similarly to U.S. equities, at times boasting a correlation of over 50%, and to gold, indicating that at least some traders saw it fulfilling its inflation-hedge role as a digital gold. However, the strong correlation to equities lasted until early 2023, and has only returned more recently at the beginning of this year.

Perhaps most importantly, BTC began a persistent sensitivity to the strength of the dollar, rallying when the dollar moved weaker and falling in price when the dollar strengthened. Does Bitcoin’s sudden co-movement with other macro-sensitive assets explain its price action? To analyze this, we’ll look at one factor that drives both the performance of risky assets as well as the strength of the dollar — monetary policy.

Historically, looser monetary policy (such as lower interest rates) has meant that there’s more liquidity in the financial system that can be allocated to risky assets, such as equities, while risk-free returns from interest rates are lower.

One measure of the tightness of monetary conditions is the spread between U.S. treasury yields at a 2Y tenor and a 10Y tenor. This metric is often used as an indicator of where we are in the monetary policy cycle. An upward sloping yield curve — when the 10Y yield trades at a premium to the 2Y yield, and the 2Y-10Y spread is positive — generally indicates easier monetary conditions, as well as more liquidity in the financial system. However, we sometimes see the curve invert, generally at the end of a cycle of tightening monetary policy.

Below is the historical chart of the 2Y-10Y spread from 2008 to today. The relationship between the changes in both the steepness of the yield curve and BTC’s price isn’t immediately obvious, as it appears to change dynamically between market regimes. A sharp steepening in the yield curve tends to have a strong positive effect on BTC’s spot price. We see two cases of that in the chart below, in both 2014 and 2021, when the curve steepens quickly and peaks near to the peak in BTC’s spot price in two of the three historical bull runs that we’ve identified.

The relationship isn’t as consistent when the curve isn’t moving sharply steeper. At times, the two move together, and at other times they move inversely to each other. This suggests a conditional correlation between them: When monetary conditions suddenly relax — such as when the Fed stimulates the economy — BTC rallies soon afterward. This is highlighted in the chart below, which shows the rolling, 1-year correlation between the daily returns of BTC and daily changes in the steepness of the yield curve.

The correlation structure has varied from a strongly positive correlation to a strongly negative one. But sharp moves steeper in the yield curve have seen that correlation spike above 90% positive — in particular, during the rallies in BTC in 2014 and 2021.

The yield curve has steepened sharply following July’s nonfarm payroll release on Aug 2, 2024 showed a weaker-than-expected jobs market. This corresponds with a strong leg downwards in spot prices as markets express a fear of the Federal Reserve cutting rates too late across risky assets. However, as we attribute a large part of this poor sentiment to the changing macroeconomic climate, and not an endemic issue to crypto-assets, this indicates that the current sell-off does not necessarily signal the beginning of the bear cycle.

Another way to track changes in liquidity in the financial system is by tracking the balance sheet of the Federal Reserve.

Quantitative easing is a potent monetary policy tool that allows the Fed to inject liquidity into the economy in order to stimulate activity, particularly when interest rates can’t be lowered any further, as was the case between 2008 and 2016. To do this, the Fed buys long-term securities on the open market and holds them on their balance sheet. They did this in 2013, which coincided with a serious rally in BTC’s price.

During the response to the Covid-19 pandemic in 2020, the Federal Reserve engaged in an unprecedented regime of quantitative easing, rapidly increasing the total assets held on its balance sheet to record highs in order to support the economy during pandemic-necessitated lockdowns. At the same time, fiscal stimulus policies meant that the Fed's injections of liquidity were passed directly to households and not circulated solely inside of the financial system, as had been the case for much of the previous 10 years of monetary policy.

Without restaurants, bars or even transportation to spend on, the accumulation of cash in the hands of households and retail consumers grew to record highs. This can be seen in the chart below, which shows the total personal savings of households in the U,S, spiking in tandem with the liquidity injections in 2013 and 2020, then falling as BTC’s price rallied.

The stockpile of liquidity in bored retail hands led to the retail-led rallies in GME and AMC in early 2021 (which we’ll return to analyze later in this report), but also coincided with the beginning of the bull run in Bitcoin in 2021. Historically easy monetary conditions, direct-to-consumer fiscal policy and lockdown-inspired time in front of screens created a perfect storm for retail investment in crypto to supercharge the rally. This almost-perfect confluence of factors in 2020 means that crypto will be hard-pressed to repeat its incredible performance.

Bitcoin Is More Exposed to Macro Factors Now; Sentiment Analysis Suggests an End to the Bull Run May Not Be on the Table

Shifting Market Sentiment: What Caused the Downturn in Sentiment in March? 

Given crypto’s growing relationship with macroeconomic conditions, what do its chances look like in the current cycle? Do changing macroeconomic conditions explain the divergence in the performance of the current cycle from that which historical precedent has led us to expect?

If 2020 was a perfect storm of bullish conditions for crypto, then 2024 is a light gust. The Federal Reserve has been on the cusp of easing monetary conditions since the turn of the year, but has until now been hampered by slow progress on inflation. Personal savings have returned to normal levels, and crypto has failed to capture the imagination of retail traders in the same way that it did in the previous cycle.

But this cycle is different for another reason too. The announcement of BTC (and, soon to trade, ETH) spot ETFs may have led to a regime shift in the status of BTC and crypto as an asset class driven more directly by macroeconomic factors. The listing of spot ETFs has allowed for BTC to become a vehicle by which traders can express views on a range of macroeconomic factors, including the strength of the dollar, attractiveness of risky assets, and expectations on the future path of monetary policy.

This effect is evidenced in part by the mounting correlation between BTC returns and those of the Nasdaq-100, which have recovered to above 30% (with a 60-day period lookback window) since falling to near zero. 

Both crypto and equities enjoyed incredible rallies in the early parts of the year. The importance of the listing of BTC Spot ETFs in early January is clearest when looking at net inflows into all ETFs (including the outflows from Grayscale’s GBTC) alongside BTC’s incredible rally.

Up until March 10, 2024, we saw the amount of BTC held by ETFs increase nearly monotonically as BTC tapped into a new pool of institutional demand. The net increase in bitcoins held by asset managers and administrators of ETFs matches the rally of BTC spot price to an ATH from its launch in early January. However, the abrupt end of those inflows also correlates with the current peak in BTC’s bull run in mid-March.

Beginning immediately after the peak and persisting since, the pace of inflows of capital into ETFs stopped abruptly — possibly because the pool of new demand from institutional investors was saturated, and the buildup of investors with an interest in BTC exposure had been temporarily exhausted. The drop-off in new demand impacted the response of BTC’s spot price to the halving one month later on April 20.

Previous halving events (see our analysis of the halving in full here) have historically preceded a strong bullish sentiment that reached its climax several months later, but 2024’s halving has already passed with a disappointing lack of impact on price. In fact, at the time of this writing, the 2024 halving has been the worst of all four in terms of price action.

In comparison to 2021, crypto is facing a colder and stormier climate. In just the past week BTC has seen sudden sell-offs of more than 15% that have taken its price to more than a 20% drawdown from March’s peak. Blogs, news outlets and Twitter (X) rushed to provide reasons behind this sell-off — including the supply of refunded Mt. Gox Bitcoin finally hitting the market, and selling by the German government.

Although we agree that the latest Mt. Gox news results in significant supply, we feel this is the market justifying the move post-fact; we doubt this is the core reason for the recent sell-off. The market knows this is a one-off event with one-off supply, as opposed to a structural seller/supply of BTC, which has been known about for many months. Why would the seller crush the market and reduce the amount recovered if they don’t face pressure to sell everything at once?

While this news does add to the downward pressure on BTC, it comes at a time when we’re observing the warning signs of deleveraging across markets. This includes volatility in several FX carry trades (where traders borrow currencies with low yields and exchange them for high yield currencies) as those positions unwind. Crypto is now increasingly exposed to macro factors, and, in the absence of bullish macro drivers, faces the headwinds that macroeconomic conditions can impart.

Sentiment Analysis: The Current Downbeat Sentiment May Not Signal an End to the Bull Rally

To answer these questions, we can explore how derivatives markets have priced in their forward-looking expectations in historical bull runs and compare their behavior to that in the current cycle. Liquid derivatives market data exists from the beginning of 2020 onward, which means that we cannot use derivatives markets data to analyze sentiment for all previous cycles.

We can use the derivatives data to learn from the way that derivatives sentiment interacted with spot prices in the second half of the immediate previous cycle, which we defined earlier as spanning the low of $3.3K on December 16, 2018 to the peak of $67.5K on November 9, 2021. 

First, we construct an index of three derivatives metrics that capture bullish or bearish sentiment: Funding rates of perpetual swap contracts, yield implied by the price of futures contracts (often called the “basis”) and the skew of the volatility smile toward OTM puts or calls. 

Then, we take a weighted average of these three measures and show the result on a scale between 0 and 100. Values below the neutral value of 50 indicate bearish sentiment — negative funding rates, futures prices below spot (e.g., negative basis) and a preference for puts in volatility markets. Values between 50 and 100 indicate bullish sentiment — positive funding rates, soaring basis and strong relative demand for calls as compared to puts. The more extreme the value on the scale of 0 to 100, the more extreme the sentiment expressed by derivatives traders.

History Tells Us Sentiment Doesn’t Necessarily Lead to a Rally

So what does our index tell us about sentiment during the previous bull run? The availability of derivatives data picks up in the midst of the cycle, showing that historically bullish sentiment came hurtling down as spot prices fell by 50% during the Covid crash of March 2020.

As we saw earlier, the year that followed the Covid crash was supercharged by stay-at-home retail traders with stockpiles of dry powder. However, sentiment didn’t rocket back to its highs immediately. Instead, it rose over a period of 12 months and appeared to lead the rally in spot price to new all-time highs.

Sentiment reached its peak on the same date as spot prices in April 2021, attributable more to extreme leveraged long positions in futures markets than a strong skew toward OTM calls in options markets. However, sentiment soon plummeted as China, the largest contributor to global hash rate at the time, introduced a sudden ban on cryptocurrency mining. Despite incurring the significant drawdown of over 50% that we noted in our earlier analysis of historical bull runs, the ban proved to be only a stumbling block to the cycle's eventual finish line at $69K the following November.

Notably, the second (and ultimately, taller) of the twin peaks in spot price recorded in 2021 didn’t see the same euphoric explosion in derivatives markets as in the earlier rally in April 2021. In the run-up to the peak, sentiment recovered from its post-crash lows, but futures yields, volatility smile skew and funding rates all remained subdued in comparison to April 2021’s mania.

The two mid-cycle crashes in sentiment due to the pandemic and ban on mining highlight the fact that in the immediate aftermath of a crash or correction, sentiment is often backward-looking: traders are fearful of further damage to be wrought in a sell-off. We see the trace of that panic in the markets that are used as input to the index, particularly in the futures yield, which dipped by over −100%. This indicates that, as an annualized rate, the basis of the futures price was significantly below that of the spot price.

We also saw each expression of sentiment in derivatives markets increase at different times. Options markets saw a spike in bullishness in January of 2021, but the futures basis had reached its all-time extremes at the local top of spot prices in mid-April 2021. It was the futures basis and funding rate that were feeling the full expression of the demand for leveraged long exposure to a continuation of BTC’s rally.

The Current Downbeat Sentiment Doesn’t Necessarily Mean That the Rally Is Over

If derivatives sentiment was a good indicator of the relative position within the larger cycle in the previous cycle, how does the sentiment expressed by today’s derivatives market compare? Here, we’ll plot BTC spot price and sentiment as we did before, ranging from the beginning of the current cycle (as defined in the analysis set out in the first section), and mark the timing of the peak of the rally (at the time the all-time high price) achieved in the 2018–2021 cycle.

The current cycle begins in a similarly bearish position as the last one. November 2022 saw the culmination of a miserable bear market, with the crash of one of the largest centralized exchanges, FTX. From there, BTC first recovered the price levels lost in the crash before ranging higher and further in several step-wise moves. As the Fed delivered what we now know was their final hike of the tightening cycle, BTC’s sideways price action was reflected in the non-committal derivatives metrics of sentiment.

The recovery of lost price levels didn’t see the same increase in bullish sentiment until much later in the year, following the announcement of the applications for and possible approvals of BTC Spot ETFs in the U.S. These Bitcoin Spot ETF approvals resulted in a bigger basis in futures yields above spot, and positive funding rates paid for the privilege of holding long positions and a premium assigned to calls relative to puts.

However, one clear conclusion from the behavior of derivatives markets in the previous cycle is that lower dips in sentiment don’t necessarily signal the conclusion of a bull run. The eventual peak of the cycle in 2021 was achieved after a near-systemic blow to Bitcoin hashpower that saw historically low sentiment before price action resumed its rally. Judging solely by the timing in the previous cycle, there’s still time to make up for lost ground before we can definitively call this cycle “different – even such a strong and swift sell-off in mid-August did not see sentiment turn decisively bearish over a long time horizon.

This Rally Is Different: Bitcoin’s Correlation with Meme Stocks and Meme Tokens

Meme Coins, Substitution Effects and Rotation of Capital

The incredible confluence of factors that supercharged 2021’s crypto asset rally also left its mark on traditional assets — GME and AMC — where the effect was very similar. Retail traders rallied around a common cause of fighting hedge funds, whom they felt had overdone short positions in the stocks. They aimed to induce a short squeeze, which eventually resulted in extraordinary returns and (potentially) the achievement of their goal.

However, there’s evidence that the same capital that first drove BTC’s rally also then drove meme stocks higher. As we did in each historical BTC rally into ETH and other altcoins, we also see evidence of capital rotation out of BTC into profitable meme stocks like AMC and GME and into crypto assets. The chart below shows BTC, along with meme stocks AMC and GME recording peaks in distinct cycles to BTC several times over, beginning with the first peak in BTC price in January 2021.

This dynamic can also be seen in the chart below, which highlights the strongly negative correlation between AMC and DOGE at the beginning of 2021 before both faded during the (often violent) deleveraging cycle that dominated crypto in 2022.

Once again, we find that things aren’t quite the same this time around. Crypto has commenced another bull run, and meme stocks like GME and AMC have caught another bid from aspiring revolutionary retail traders. But this time, their rally doesn’t exhibit the same extremity or longevity — or impact on crypto.

First, DOGE is apparently no longer the preeminent meme coin du jour, having rallied to just $0.20 in 2024, some way off its 2021-peak of $0.68 per token. While DOGE did rally some months before the revival of meme stocks like GME, we can attribute this more to the reemergence of Roaring Kitty, the architect of 2021’s Reddit rally. We do see brief evidence of one cycle of capital rotation following GME’s spike, with DOGE rallying during the lull between GME’s two peaks, but the magnitude is far lower and could indicate that there’s a lower total amount of liquidity sloshing around between these assets.

We see the same pattern of behavior repeated in both BONK and PEPE as well, both certainly among the most relevant meme coins in the current cycle. But again, both report lackluster returns in comparison to those seen in DOGE and other dog-themed coins in 2021.

It’s possible that we could also be seeing a substitution effect between meme coins and meme stocks — or even between meme coins themselves. Wider proliferation — along with easier access to minting, promoting and trading meme coins— means that capital that would have previously oscillated between meme coins and meme stocks is diffused across a larger set of assets. That may in turn mean that a larger set of meme assets is competing for a smaller pool of capital than in 2021, and that meme coins are attracting a lot of the demand and capital that would have otherwise been allocated to meme stocks — and could have driven GME and AMC closer to their previous highs.

What is certain is the impact of lower disposable capital among retail traders, as indicated by the lower level of personal savings that we saw earlier, as well as far lower exuberance in crypto asset prices. Additionally, the lower correlation suggests a different type of investor may be behind the most recent rally in prices.

The question that remains is: Where in the cycle are we now? A positive correlation between meme coins and meme stocks is manifesting as a concurrent sell-off. Since the second spike in meme coins, we haven’t seen a noticeable rotation of capital back into meme stocks (such as AMC and GME) as we did multiple times in 2021. That suggests that we’re no longer in a period of capital rotation. Instead, this could be a period of deleveraging similar to that which finally ended the craze last time.

Institutional Influence Makes This Rally So Different From the Previous Ones

Retail Out, Institutional In?

This cycle is different for a few reasons: We haven’t seen BTC notching a higher all-time high, a push onward to new highs or the same rotation in capital that marked the end of the recovery period in each of the historical cycles that we’ve considered. Meme coins and meme stocks have both reported lackluster returns, despite the return of Roaring Kitty to the order books.

Each of these factors indicates that, as they were in 2013 and 2021, retail investors are no longer the driving force behind strong crypto price action. Personal savings rates have been battered by double-digit inflation, and the perfect storm that carried asset prices higher hasn’t been repeated.

Instead, the return of the strong correlation between crypto assets and equities that we first saw in the cross-asset, post-pandemic recovery rally in 2020 and 2021 indicates a new market force driving price action: institutional investors. The renewed co-movement with equities coincides with the launch of BTC’s Spot ETFs in early January and the unlocking of a new pool of demand for crypto. 

The bull run in the early months of 2024 matches the strong inflows into the newly released Spot ETFs; so does its halt in mid-March match the stemming of those inflows. Institutional macro traders are now able to trade BTC alongside other risky assets like NDX, and we expect that correlation to continue, given an important year of macroeconomic policy to come.