Bitcoin Faces Challenges While S&P 500 and Nasdaq Soar – Understanding the Factors Behind BTC's Struggles

In 2025, global markets experienced significant challenges due to changes in U.S. trade policies, impacting risk assets. While both the S&P 500 and the Nasdaq faced declines earlier this year, Bitcoin [BTC] experienced even sharper downward pressure, particularly in the fourth quarter. Despite this, Bitcoin has shown an increasing divergence from traditional equities.

Key Takeaways

Market Performance: The S&P 500 and Nasdaq have shown positive growth, while Bitcoin has struggled.
Correlation Decline: Bitcoin's correlation with U.S. stocks has reached yearly lows, indicating a separate trajectory.
Long-Term Growth: Bitcoin has posted impressive long-term growth rates compared to traditional investments.
Impacts of Divergence: The disconnect between Bitcoin and stock markets poses both opportunities and limitations for BTC.

Bitcoin [BTC]

Bitcoin’s Correlation With Equities Dips

Historically, Bitcoin has been closely linked to U.S. equities, especially during significant market cycles. However, this relationship has weakened notably in recent months. Analyst Darkfost reports that BTC's correlation with both the S&P 500 and the Nasdaq has hit yearly lows, worsening after the markets cooled amid concerns over tariffs and trade wars.

While U.S. stocks maintained their upward trends, Bitcoin has struggled to bounce back.

S&P 500 Source: S&P Global

The S&P 500 saw an approximate 2.06% rise quarter-to-date and nearly 16% year-to-date, climbing from around 5,400 to about 6,900. Meanwhile, the Nasdaq Composite experienced a roughly 4.76% increase in the fourth quarter and close to 20.12% over the year. In contrast, Bitcoin faced downward pressure, with a drawdown of nearly 36%, and its attempts to recover have stalled, leading to a widening gap in performance.

Bitcoin correlation with TradFi Source: Checkonchain

Bitcoin's correlation with the S&P 500 has dropped to around -0.299, while its correlation with the Nasdaq decreased to about -0.24. Additionally, correlations with gold and the U.S. Dollar Index have weakened, though U.S. Treasuries appear stronger.

Long-Term Metrics Tell a Different Story

The short-term struggles of Bitcoin stand in stark contrast to its long-term performance metrics. When evaluated using the Compound Annual Growth Rate (CAGR), Bitcoin continues to outperform standard assets over extended periods. This metric eliminates short-term volatility to highlight sustained growth.

Bitcoin CAGR Source: Checkonchain

Bitcoin’s five-year CAGR exceeds 200%, averaging around 47% annually. In comparison, the S&P 500 averaged about 17%, while the Nasdaq hovered around 20%. This data indicates that Bitcoin maintains an asymmetric long-term correlation with equities, largely influenced by its potential for high returns rather than immediate co-movement.

The Implications of Divergence

The recent breakdown in correlation has mixed implications for Bitcoin's future. On one side, a weaker connection emphasizes Bitcoin's position as a unique asset class, suggesting that declines in the equity market might not directly impact it. On the other hand, this separation restricts Bitcoin from benefiting from equity market rallies, as funds have shifted towards stocks linked to artificial intelligence and data centers, sidelining cryptocurrencies.

This disconnect has left Bitcoin trading more independently, with macroeconomic sentiments affecting its trajectory unevenly.

Conclusion

As Bitcoin navigates through these complex market dynamics, understanding its relationship with traditional equities and its long-term growth potential is essential for investors. The divergence may present new opportunities for Bitcoin as a distinct asset class, while also highlighting the risks involved in its current struggles against traditional financial markets.