Since the bull market for bitcoin (and cryptocurrencies overall) started back up during the pandemic, we have seen a tight correlation to the stock market. In layman’s terms – when the stock market goes up and down, bitcoin follows closely behind (though since bitcoin is more volatile, the swings are larger). This relationship is playing out because the elite and institutions have significantly more money than everyday people and have treated cryptocurrencies like ‘risk-on’ assets like they do stocks (with the correlation being exceptionally high to tech stocks). However, many everyday people still do not understand how bitcoin is unlike any other cryptocurrency and the benefits it enjoys over stocks. These benefits are why bitcoin will soon decouple from the stock market, and this correlation will come to a swift end.

Bitcoin’s intrinsic value is that it serves as an alternative to the current fiat-based financial system designed to result in boom/bust economic cycles. These cycles purposely transfer wealth upwards through market manipulation by central banks and major financial firms pulling the strings. They accomplish this through central-bank-powered corruption, market manipulation, and printing/creating fiat money during recessions (also known as quantitative easing) that wind up artificially inflating the value of stocks (which we know is happening since the price-to-earnings ratios of most American stocks show the prices being paid cannot justify the costs) and other assets. 

When prices of assets are artificially inflated, the value of money that everyday people have in their accounts, and their stagnant salaries, goes down significantly, and they can afford much less through no fault of their own. The results of this system built on centrally controlled fiat money can be definitively seen through the constantly increasing Gini Coefficient (a commonly accepted measure of inequality) of the world over the past few decades since The Federal Reserve dropped the gold standard. Were bitcoin to gain significant acceptance as a reserve asset and a store of value as many predict it will, its value will skyrocket, volatility will be drastically reduced, and it could one day be used as a medium of exchange that replaces the dollar. 

This transition removes the ability of those centralized entities to drive wealth upwards without creating value through shortsighted currency manipulation, and money printing that they claim boosts the economy. Bitcoin presents the best alternative to the current financial system for many reasons. For starters, the publicly available ledger for all to see means it’s transparent and trustworthy, the pseudonymity provided by wallets protects people’s privacy, and the proper regulation of it makes it the best asset for regulators to enforce the law and minimize financial crime due to the permanent, immutable ledger (1). 

Bitcoin is different from all other cryptocurrencies because it is finite – only 21M bitcoins will ever be mined/created. Additionally, it has a proof of work consensus mechanism, the safest form of blockchain, meaning there are few entities with the computational power necessary to hack the system (hence why nobody has done it yet). This consensus mechanism and widespread attention have resulted in nodes worldwide reducing centralization risk to any specific country.

After reaching all-time highs earlier this year, bitcoin has taken a significant downturn and given back much of its gains. I believe this is primarily because of three reasons:

1. Monetary policy of the Federal Reserve impacts how wealthy investors allocate their money. Higher interest rates make holding your money in a bank account more attractive and force debtors who often invest that borrowed money to pull the money out of their investments to avoid paying higher rates.
2. Macroeconomic factors (like the war in Ukraine, government-driven food shortages, and government-driven pandemic response) making investors nervous and making people want to hold cash.
3. Market manipulation – history has shown us that those with power usually do everything possible to avoid ceding that power. Financial institutions and people profiting off the current system are likely crashing/manipulating the markets to create distrust in bitcoin.

One of the most prominent cryptocurrency analysis channels on YouTube, the Coin Bureau, recently released a video discussing the latest cryptocurrency report from Pantera – one of the most profitable and respected crypto investment funds. Guy, the host, discusses the consistent performance of decentralized finance (DeFi) protocols (like Aave, Compound Finance, MakerDao, and Uniswap) during the recent crash, indicating they are highly reliable, so the future of DeFi is bright, and banks are probably getting more and more nervous. In the video, Guy points out that the decoupling of correlation between bitcoin and the stock market has already begun, moving from about 75% in May, down to about 35% today.

The recent collapse of Terra may have driven the start of that drop in correlation, so it remains to be seen if this trend will continue. What we do know is as inflation picks up, people trust the government less and less, and we begin to look for alternate systems outside of the ones that have continued to fail us, bitcoin will become more and more attractive and the decoupling will pick up momentum. Though governments can make life difficult for bitcoin holders, the only way to truly ban it is to ban the internet, so that will not happen. 

The report mentions towards the end that it’s possible that a year from now, we may face a world in which stocks are down, bonds are down, real estate is down, and cryptocurrencies, along with gold and soft commodities, are soaring. Boards of directors of different companies can issue stocks whenever they want, which devalues those stocks, central banks can print currencies whenever they want, which devalues them, and corrupt government governments/companies may default on their debts, but bitcoin is finite, reliable (thanks to the code) and transparent. The decoupling will come – it’s just a matter of time. Click here to read more about the macroeconomic factors that present a bullish case for bitcoin (like countries considering its adoption like Switzerland and more), and see below for the full video from The Coin Bureau.

(1) An FBI Agent Describing Why Bitcoin is Beneficial for Fighting Financial Crimes

https://www.youtube.com/watch?v=507wn9VcSAE