BTC's Golden Correlation Exceeds Historical Peaks, Signaling Potential Major Bull Run

Author: Benson Sun (@BensonTWN)

During the week of August 22, BTC surged 24%. The market was abuzz with discussion: Has the bull market arrived? Many, however, remained skeptical.

First, the conclusion: I believe what’s coming is not just a bull market, but a major-level bull market.

Let’s start with something very unusual.

In the same week that BTC surged, gold rose 5.6% and Nasdaq fell 2.1%.

Over the past few years, many have treated BTC as a high-beta tech stock: when U.S. equities enter risk-on mode, BTC surges; when U.S. markets tighten liquidity, BTC typically declines even faster.

But this time, the move was different: after August 17, both BTC and gold strengthened simultaneously, while Nasdaq remained unchanged.

In fact, since May, the 60-day correlation coefficient between BTC and gold has surged sharply, peaking at 0.636, nearing its historical high of 0.64 in November 2020 (with a long-term median of only 0.12). Meanwhile, the correlation coefficient between BTC and Nasdaq has steadily declined, reaching a low of 0.13, and has since rebounded to 0.22.

How rare is it for the orange line to touch 0.5? Since BTC trading records began, only 2.2% of trading days met this condition. Prior to this cycle, it had only occurred twice in history: in August 2020 and October 2022.

Looking back, August 2020 was just before the main upward wave of the bull market. At that time, BTC was trading sideways around $10,000–$12,000; months later, it broke above its previous high and eventually surged to $64,000, achieving a maximum gain of +458%.

The market experienced a rough period in October 2022, with BTC forming a bottom near $20,000. In November, the unexpected collapse of FTX sent prices plunging to $15,700. However, viewed within the full cycle, October 2022 had already reached the long-term bottom. Calculating from the signal level at that time, the subsequent peak of $73,000 represented a maximum gain of +276%.

Now is the third period in history when BTC and gold have been highly correlated, but if history rhymes, this could be the breakout point of a bull market.

And this time, there’s another very different aspect.

During the 2020 cycle, the median correlation between BTC and the Nasdaq was still 0.44, as all assets were lifted by the same wave of liquidity under a comprehensive QE environment.

During the 2022 cycle, BTC's correlation with the Nasdaq reached 0.62, even higher than its correlation with gold.

For the first time ever: correlation with gold exceeds 0.6, while correlation with Nasdaq drops below 0.25. This combination has never occurred before.

If we interpret correlation as the market’s current logic for pricing BTC, then among the three periods of high gold correlation, this one is the most pure expression of a “hedge against depreciation” pricing structure.

If we examine the relationship between gold correlation and cycles more closely, we observe a recurring pattern:

After BTC experiences a pullback of more than 25% from its previous high, its 60-day correlation coefficient with gold rapidly rises above 0.4 from a low level. This has occurred four times in history: December 2018, October 2022, September 2024, and June 2026. In all three prior instances, the signal occurred near significant market bottoms. If history repeats itself, the 57K to 58K range is likely to be the bottom of this cycle.

This phenomenon itself is quite interesting. Although BTC is often called digital gold, historical data shows that its long-term median correlation with the Nasdaq is 0.45, while its correlation with gold is only 0.12. In normal times, it behaves far more like a high-volatility beta tech stock than gold.

So why does BTC exhibit a sharp increase in correlation with gold at the end of each cycle's bottom?

My hypothesis is: there are two groups of capital in the market trading BTC, each with completely different operational logic.

One group treats it as a high-risk growth stock, with short-term trading capital driving its price; when this group is in control, BTC’s movement becomes tightly correlated with the Nasdaq.

The other group truly views it as a long-term hedge against fiat currency depreciation—that is, capital that believes in the concept of digital gold.

During a sharp price decline, the first batch of short-term capital exits fastest. Once the price drops into the bottom range and the floating supply gradually concentrates in the hands of the second batch of long-term holders, control over market pricing shifts hands.

As more buyers price BTC using the logic of "hard assets," the narrative of digital gold is also amplified, ultimately causing BTC's price movement to increasingly align with that of gold.

If the gold correlation coefficient offers an external macro perspective on BTC’s current pricing logic, then the Karma Index assesses whether this round of consolidation has been sufficient, based on market sentiment and cycle positioning.

The Karma Index is a cyclical indicator developed by CoinKarma that synthesizes nine dimensions—including market liquidity, funding rates, on-chain costs, app rankings, and search热度—to create a 0-to-100 market thermometer for assessing macro market positioning. Values above 80 indicate overheating, while values below 20 signal extreme fear.

As shown in the chart above, prior to this rally, the Karma Index remained at low levels for an extended period, repeatedly falling into the extreme fear zone below 20—mirroring the emotional patterns observed at previous major bottoms.

Since 2017, "BTC has experienced a weekly gain of over 20%" has occurred 27 times, making this the 28th instance.

Of those previous 27 instances, if you bought in after the surge, the median return six months later was only +3.6%, whereas the median return six months later from randomly buying on any trading day during the same period was +13.9%. Therefore, historically, buying in after a single-week surge of 20% offers no advantage.

However, when considering the Karma Index, the situation changes dramatically: only 8 cases had an average Karma Index below 30 in the 60 days prior to the rally, resulting in 6 wins and 2 losses—a win rate jumping to 75%, with the median return surging from +3.6% to +49.4%.

Now look at Nasdaq—the results are even more interesting.

Of the eight events mentioned above, only three occurred when Bitcoin rose more than 20% on its own while Nasdaq did not rise during the same period:

In December 2018, a 124.3% increase six months later.

In May 2019, a 30.2% increase six months later.

In October 2023, a 93.7% increase six months later.

These three instances occurred at the major bear market bottom, the beginning of the primary uptrend, and the start of the ETF bull market, all of which maintained positive returns six months later.

This time, the average Karma Index 60 days before the rally was only 19.5, ranking third lowest among the nine low-sentiment samples including this one; during the same period of BTC’s surge, the Nasdaq fell by 2.1%.

In other words, this also follows the pattern of "a prolonged period of low sentiment consolidation followed by BTC breaking away from Nasdaq to surge independently," making it the fourth such occurrence in history.

Looking at all the previous data together, we can summarize two things:

First, the correlation between BTC and gold has risen to a level rarely seen in history. In the past, this signal following a sharp pullback has almost always occurred near major bottoms.

Second, the Karma Index indicates that this consolidation has been sufficiently thorough. Historically, when markets surge after a prolonged period of low sentiment, their subsequent performance is typically much stronger than that of markets simply chasing highs.

One analyzes cross-asset pricing, and the other examines cyclical sentiment—both support the view that we are currently in the early stage of a bull market.

Many people are now afraid of high prices because BTC has been in a bear market for so long, and everyone has become anchored.

Especially in the past period, while U.S. stocks and gold rose daily, BTC continued to decline. After being subjected to this for so long, it’s natural to view every rally as a chance to escape, making you even more hesitant to buy the faster it rises.

However, when examining the trend over the past two weeks, BTC’s relative strength has clearly shifted—it is now not only outperforming U.S. stocks but also surpassing gold.

The most tormenting aspect of a bear market is that no one knows how low the bottom will go. The end of 2018 was the classic example. At that time, many people kept buying the dip as prices fell from $6,000, only to see BTC drop another 50% to $3,000. Many investors lost their nerve, selling everything as soon as they broke even.

Looking back, the most comfortable entry point during that holding period was when BTC surged from over $3,000 to $4,000. Although the cost was higher than the lowest point, the certainty was much greater, as the main upward trend was just about to begin.

I believe this is the same buying opportunity: historically, all samples meeting the criteria of "high correlation with gold, independent performance from U.S. stocks, and Karma Index consolidation" have occurred at the early stage of primary bull market rallies.

In previous Bitcoin bull markets, the primary drivers of price increases were the halving narrative and spillover liquidity from the U.S. dollar. While “digital gold” is mentioned in every cycle, it has largely remained a thematic idea rather than a dominant narrative.

This time, I feel the situation is different.

The yield on the 30-year U.S. Treasury bond recently rose to 5.34%, reaching its highest level since 2007. A higher yield indicates that investors demand greater returns to lend money to the U.S. for an extended period.

The U.S. is currently carrying nearly $40 trillion in debt. The higher interest rates remain, the greater the cost to refinance maturing debt, causing interest expenses to further increase the deficit, forcing the government to issue even more bonds.

These issues have existed for a long time, but what’s more noteworthy is that the market has become highly sensitive to this matter.

On August 19, the U.S. Department of the Treasury announced that it would at least double the upper limit for liquidity support repurchase agreements on long-term Treasuries. Following the announcement, long-term bond yields declined, while gold and BTC rose in tandem. The market quickly interpreted this as the Treasury being willing to inject liquidity to ensure the smooth functioning of the long-term bond market.

By September 4, the trend had completely reversed. U.S. non-farm payrolls added 162,000 jobs, far exceeding the market expectation of 56,000, pushing the probability of an interest rate hike to as high as 65%. U.S. Treasury yields rose rapidly, the dollar strengthened, and stocks, gold, and BTC all plunged simultaneously.

A few months ago, a non-farm payrolls report wouldn't have triggered such a massive market reaction. Now, the sentiment has clearly shifted—everyone is closely watching the Fed, long-term bond yields, and liquidity; the market's nerves are on edge.

For the asset market, America’s debt issue will likely ultimately be traded along two paths.

First, use AI to grow the pie. When productivity increases, corporate profits rise, and economic growth outpaces debt expansion, the debt-to-GDP ratio will naturally decline.

Second, gradually dilute the real value of debt through monetary expansion and inflation. The former corresponds to AI stocks, while the latter corresponds to gold and BTC.

Over the past few years, the market has heavily bet on the first path—the productivity revolution brought by AI. If the market now begins to refocus its attention on debt, liquidity, and fiat currency purchasing power, inflation-hedging trades are likely to return to the center of the market.

The scope of this issue is enormous. Everyone worldwide holding cash, government bonds, pensions, and fiat assets must confront the same question: How much purchasing power will my money retain in ten years? Once markets begin to doubt whether sovereign debt can expand without continuously diluting the currency, capital will naturally flow toward assets with limited supply and no possibility of arbitrary issuance.

Gold is the most traditional answer. BTC is becoming another.

Previously, even if institutions recognized BTC as digital gold, they still had to navigate a complex chain of issues including exchanges, private keys, custody, compliance, and accounting. The recently approved spot ETFs have now genuinely paved the way.

Now, asset management firms, family offices, pension funds, and even general brokerage accounts can directly allocate to BTC using familiar financial instruments. The narrative has long existed. This time, there are additional compliant channels capable of accommodating large sums of capital.

This is why the current synchronization between BTC and gold is more noteworthy than the previous two instances. Gold correlation has risen to historically rare highs, while Nasdaq correlation remains low. From an upward momentum perspective, this may be BTC’s closest alignment with gold ever.

If "anti-fiat depreciation" truly evolves from a recurring theme that gets hyped in every cycle into the next major market narrative, the pool of capital flowing into BTC would be entirely different.

If this round of BTC begins to absorb global demand for asset allocation driven by hedging against currency credit erosion, sovereign debt risks, and declining purchasing power, it could attract the largest volume of capital in BTC's history.

If this macro theme truly unfolds, what we're seeing now is likely just the beginning of a major bull market.