Since the November 5 election of Donald Trump to the U.S. presidency, bitcoin (BTC) has surged approximately 47%, significantly outpacing the S&P 500’s modest 4% advance. This impressive performance raises questions about the underlying factors contributing to bitcoin’s resilience in a fluctuating market.
The incoming president has articulated a favorable stance toward bitcoin and cryptocurrencies, which could play a pivotal role in shaping future policy. Moreover, the Republican sweep of both the Senate and House of Representatives is likely to influence the legislative landscape in which cryptocurrencies operate.
In an exclusive discussion with CoinDesk, Andre Dragosch, Head of Research at Bitwise in Europe, shared insights on what differentiates bitcoin’s recent trajectory from that of traditional stocks. He stated, “My view on bitcoin versus S&P 500 is that the stock market has been negatively affected by the Fed’s hawkish rate cut in December.” The Federal Reserve’s decision to revise its planned rate cuts for 2025 to just two cuts—less than initially anticipated—has added to the uncertainty prevailing in traditional financial markets.
Simultaneously, the DXY index, which gauges the value of the U.S. dollar against a select basket of major currencies, has risen by 5%. This increase typically exerts downward pressure on risk assets, which would usually apply to bitcoin as well. However, Dragosch notes that bitcoin has managed to maintain its strength, attributing this stability to several factors, particularly the continuing supply deficit of bitcoin on exchanges: “Bitcoin exchange balances have continued to drift lower despite profit-taking,” he explained.
Recently, however, the correlation between bitcoin and the S&P 500 has risen again, reaching a correlation coefficient of 0.88 over the past 20-day moving average. This figure indicates a strong relationship between the two asset classes, where 0 signifies no correlation and 1 denotes complete correlation.
While Dragosch posits that on-chain factors are likely to provide significant support for bitcoin at least until mid-2025, he cautions that the deteriorating macroeconomic landscape presents potential short-term risks for the cryptocurrency. The relatively high correlation with the S&P 500 adds to these risks, indicating that investors should remain vigilant about market developments in the coming months.
