When Bitcoin Hits Bottom
Original link: @abetrade
Compiled by: Peggy, BlockBeats
Editor’s Note: As Bitcoin underperforms while gold and U.S. equities repeatedly hit new highs, the narrative that “capital is rotating from precious metals into crypto assets” has resurfaced in the market. Rather than following this intuitive assumption to draw trading conclusions, this article returns to the data to systematically examine whether a verifiable long-term relationship truly exists between Bitcoin and gold.
Correlation and cointegration analysis reveal that Bitcoin and gold do not exhibit a robust mean-reverting or inverse structural relationship.所谓的轮动 is more of a post-hoc explanation than a repeatable, verifiable market mechanism. Bitcoin is neither a safe-haven metal nor a stock index—it is an independent market characterized by extremely high volatility and an evolving structure.
The article further points out that rather than relying on analogies with other assets, identifying Bitcoin’s bottom requires focusing on factors that truly drive market direction, such as positioning, derivatives structure, and the exhaustion of sentiment. Historical experience shows that most genuine bottoms are formed when nearly everyone has already given up.
The following is the original text:
The crypto market is not currently hot. While stock and metal prices continue to hit new all-time highs, crypto assets have been riding the "pain train" since last October.
Lately, the timeline has been flooded with claims like: “Funds are about to rotate from precious metals into crypto assets any moment now.” Unfortunately, those making this argument are often the industry’s well-known “talkers,” whose only consistent source of PnL comes from monthly engagement payouts on X.
I’d like to take a moment to analyze whether this so-called shift from precious metals to crypto has any real foundation (spoiler: it doesn’t), and then share some key turning points in crypto market history and how you can identify them.
The relationship between Bitcoin and gold
First, an obvious issue is that in order to find a relationship between gold reaching its peak and bitcoin's performance, gold would need to frequently "peak." However, in reality, there have been few true peaks in gold over the past decade.
Sure, "getting pumped up" feels great, but when sharing opinions online, it's best to back them up with data to avoid sounding completely foolish. Over the past decade, gold has experienced only three relatively significant pullbacks: in 2018, 2020, and 2022. That’s just three data points. Merely this fact alone would be enough to deter me from digging deeper; however, to complete this article, let’s take a closer look anyway.
If you look at the chart above, you'll notice that two of the three gold cycle highs actually occurred before Bitcoin's downtrends, in 2018 and 2022. The only time Bitcoin strengthened after a gold pullback was during the 2020 classic "risk-on" frenzy.
Over the past decade, the overall correlation coefficient between Bitcoin and gold has been close to 0.8, which is not surprising—because both markets have risen over the long term. But correlation doesn’t answer the question you really care about.
If you want to determine whether there is a "trade-off, strength rotation, and eventual reversion" relationship between two assets, looking at correlation alone is not enough—you need to examine cointegration.
Cointegration
Correlation measures whether two assets tend to move up and down together on a daily basis.
Cointegration asks a different question: whether these two assets maintain a stable relationship over the long term, such that any deviation is pulled back.
You can think of it like two drunk people walking home together:
Each may wobble and follow a chaotic path (non-stationary), but if two people are tied together by a rope, they cannot drift too far apart. That "rope" is cointegration.
If the narrative that "capital is rotating from gold to crypto assets" has any substance, you should at least observe a cointegration relationship between Bitcoin and gold—meaning that when gold surges while Bitcoin significantly underperforms, there should be some real force in the market pulling both back onto the same long-term trajectory.
Combined with the chart above, the real message conveyed by the data is this: The Engle–Granger cointegration test found no cointegration.
The p-value for the full sample is 0.44, well above the typical significance threshold of 0.05. Further examining the rolling two-year windows, none of the 31 intervals show cointegration at the 5% significance level. Additionally, the spread residuals themselves are non-stationary.
The simpler BTC/gold ratio appears slightly more "optimistic," but not by much. An ADF test on this ratio yields only marginally stationary results (p = 0.034), suggesting it may have a very weak mean-reversion characteristic. However, the issue is that its half-life is approximately 216 days—nearly seven months—so slow that it is almost entirely drowned out by noise.
At current levels, the price of bitcoin is approximately equivalent to 16 ounces of gold, about 11% higher than the historical average of 14.4. The corresponding z-score is -2.62, suggesting that, historically, bitcoin appears relatively "cheap" compared to gold.
But the key point here is that this reading is primarily driven by gold's recent parabolic rise, not by any reliable mean-reverting relationship that would pull them back together.
In fact, there is no stable cointegration relationship. They are fundamentally two entirely different types of assets: gold is a mature safe-haven asset, while bitcoin is a highly volatile risk asset that simply happened to exhibit an upward trend during the same period.
If you have no idea what any of the above means, here's a super-concise statistics crash course:
The Engle–Granger test is the standard method for determining cointegration. It first performs a regression between two assets, then tests whether the regression residuals (i.e., the "spread" between the two) are stationary—whether they fluctuate around a stable mean rather than drifting indefinitely. If the residuals are stationary, the two assets are cointegrated.
The ADF test (Augmented Dickey-Fuller) is used to determine whether a time series is stationary. It essentially tests for the presence of a “unit root,” meaning whether the series tends to trend indefinitely or revert to its mean.
A p-value below 0.05 means you can reject the "unit root" hypothesis and conclude that the series is stationary, indicating mean reversion.
The half-life describes how quickly mean reversion occurs. If a spread has a half-life of 30 days, it means that after being pulled apart, about half the deviation will be corrected within a month.
Short half-life = tradable value;
Long half-life = practically useless except for "HODL and pray."
Ultimately, I’ve always felt that trying to force Bitcoin into any traditional financial asset category is inherently absurd. Most of the time, people use these comparisons simply to fit the narrative that best suits their current perspective: today Bitcoin is “digital gold,” tomorrow it’s “Nasdaq on leverage.”
In contrast, the correlation with the stock market is much more genuine. Over the past five years, Bitcoin’s peaks and troughs have been highly synchronized with the S&P 500 (SPX)—until this stage: the SPX remains firmly near all-time highs, while Bitcoin has already retraced 40% from its peak.
For this reason, you should view Bitcoin as an independent entity. It is not a metal—no one would consider an asset with an annualized volatility exceeding 50% a safe-haven asset (for comparison, gold’s annualized volatility is around 15%, and even that is considered relatively high among store-of-value assets).
It is also not a stock index—Bitcoin has no constituent stocks; it is essentially just a piece of code.
Over the years, Bitcoin has been wrapped in various narratives: a payment tool, a store of value, digital gold, a global reserve asset, and more.
These claims sound great, but the reality is that this is still a relatively young market, and it’s difficult to assert that it has clear, stable practical uses beyond being a speculative asset. Ultimately, there’s nothing wrong with treating it as a speculative asset—what matters is maintaining a清醒 and realistic understanding of this fact.
Bottom
It is extremely difficult to reliably catch the bottom of Bitcoin—of course, no market is easy, but the issue with Bitcoin is that it has changed so rapidly over the years that historical patterns have become increasingly less relevant.
Ten years ago, the market structure of gold and the S&P 500 (SPX) did not differ significantly from today;
But in 2015, one of the main uses of holding bitcoin was to buy heroin online.
This has clearly undergone a dramatic transformation. Today, market participants are far more serious, especially after the significant increase in open interest for CME Bitcoin futures and options in 2023, and the launch of Bitcoin ETFs in 2024, which marked the formal and large-scale entry of institutional capital into this market.
Bitcoin is a highly volatile market. If there’s one conclusion we can be relatively confident about, it’s that market bottoms are often accompanied by extreme overreactions and “panic liquidations” across various derivatives.
This signal is reflected in crypto-native metrics, such as extreme volatility in open interest and funding rates, as well as in more institutional-oriented indicators, such as abnormal changes in options skew and ETF fund flows.
I built a personal indicator that integrates these signals into a composite regime for tracking (please note that this indicator is currently not available to the public—apologies). As shown in the chart, the areas marked in red typically correspond to periods of extreme market pessimism: open interest continues to decline, funding rates turn negative, traders pay excessive premiums for put options, and realized volatility exceeds implied volatility.
Meanwhile, the spot-volatility correlation in Bitcoin, while still somewhat noisy overall, is increasingly exhibiting characteristics similar to those of stock indices.
Summary
If you're here for the "entry point, stop-loss, take-profit (Entry / SL / TP)," then I can only say sorry for disappointing you (though I'm not really that sorry).
The purpose of this analysis is to clarify a fact that seems obvious but is often overlooked: Bitcoin operates as an independent market. At times, it may appear like gold, and at other times like a stock, but fundamentally, there is no inherent reason for them to move in sync over the long term.
If you're currently staring at constantly falling prices, trying to guess when the bottom will appear, instead of applying analogies from other assets, focus on the data that truly matters for this market. Look at the position structure—it often tells the most honest and brutal story.
Also don’t forget: most true bottoms are formed when almost everyone has already given up.
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