First, understand why we had a correlation in the first place.

Conventional thinking would tell you that crypto is traded by all the same people who trade stocks, should follow all the same macros, and should always have a strong correlation.

But historically, it has rarely been the case.

Bitcoin has always had a low correlation to traditional markets.

That briefly changed during Covid.

Whether it's monetary policies, or the crypto bear cycle coinciding with the brief world recession, in 2022, Bitcoin hit its highest and longest correlation with the S&P 500.

Hitting correlations as high as 0.8.

It started with years of low correlation, and only started hitting highs with Covid.

https://preview.redd.it/4b3ff17dz7gc1.jpg?820&format=pjpg&auto=webp&s=878be30de5d980f6decc689c9816a0afa59a2469

Note: High correlation is considered 0.8 and above. For instance, Ethereum vs BTC can often break above 0.8.

0.5 is moderate. Below 0.5 is low. And the same goes with negative correlation. Most things that aren't correlated will spend a lot of time between 0.5 and -0.5

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Why correlation is going back down:

The correlation between the S&P500 and Bitcoin is back down to around 0.0.

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The last two years of decline in BTC vs S&P 500 correlation

There's a few reasons.

The biggest one is that the crypto market has more heavily followed its own cycles.

There may be brief short term reaction for the day on stocks and macro news. But even those sometimes go on the opposite reaction you'd expect.

We've seen time and again, big dips in stocks, bad news, and Bitcoin going in the opposite reaction.

The mechanism of the Bitcoin market is still heavily tied to the unique tokenomics and mining mechanisms. And even the speculative side is going at its wild volatile accelerated pace that doesn't slow down for traditional markets.

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Another reason is the end of Covid and the monetary policies we had those years. The correlation was briefly following those events.

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An important point to keep in mind is that maybe the correlation was more coincidental than incidental.

Keep in mind that the Bitcoin market had already crashed months before the War in Ukraine, before Fed rate hikes, and when stocks where still rallying to new highs.

Bitcoin had already started its bear cycle before stocks went bearish.

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How long will this decoupling last?

This is actually very easy to answer, if you know the cause roots. As long as crypto continues to follow its cycles, so as long as Bitcoin dominates the market with its tokenomics, and as long as it doesn't fork, and crypto stays relevant. Those are the only 3 main conditions that need to be met.

While we have those 3 conditions, the crypto market will remain too heavily stuck in its cycles for even black swan events to derail things for more than brief periods of time.

There may be incidental correlations if stocks continue to rally at the same time crypto is going through a bullrun. But it probably won't be at the same magnitude.