The Golden Bloodline of Bitcoin Awakens: This Could Be the Starting Point of the Largest Bull Market in BTC History

Author: @BensonTWN

In the week of August 22, BTC surged by 24%. The market was abuzz with discussions: has the bull market arrived? Many remain skeptical about this.

To conclude: I believe that what follows is not just a bull market, but a significant bull market.

Bitcoin's Golden Bloodline Fully Awakens

Let’s start with something quite unusual.

In the same week that BTC skyrocketed, gold rose by 5.6%, while Nasdaq fell by 2.1%.

In recent years, people have gotten used to treating BTC as a high Beta tech stock. When U.S. stocks are risk-on, BTC surges; when U.S. stocks tighten liquidity, BTC usually falls even faster.

But this time, the movement is different. After August 17, both BTC and gold strengthened simultaneously, while Nasdaq remained stagnant.

In fact, since May, the 60-day correlation coefficient between BTC and gold has skyrocketed, reaching a high of 0.636, nearing its historical peak (0.64 in November 2020, with a long-term median of only 0.12). At the same time, the correlation coefficient between BTC and Nasdaq has decreased, dropping to a low of 0.13, currently rebounding to 0.22.

How rare is it for this orange line to rise above 0.5? Since BTC has had trading records, only 2.2% of qualifying trading days have met this condition. Before this round, it had only occurred during two periods: August 2020 and October 2022.

Looking back, August 2020 was just before the main wave of the bull market. At that time, BTC was hovering around $10,000 - $12,000, and a few months later, it broke through previous highs, eventually soaring to $64,000, with a maximum return of +458%.

The October 2022 instance was more tumultuous; BTC was originally bottoming around $20,000. In November, the FTX collapse caused prices to plummet to $15,700. However, from a complete cycle perspective, October 2022 fell within a long-term bottom zone. Calculating from the signal price at that time, the maximum increase to the subsequent 73K high reached +276%.

Now, we are in the third period of high correlation between BTC and gold in history, but if history rhymes, this might be the starting point of the bull market.

Moreover, there is something very different this time.

During the 2020 round, the median correlation between BTC and Nasdaq was still 0.44, at a time when the environment was fully under QE, with all assets driven up by the same liquidity.

In the 2022 round, the correlation between BTC and Nasdaq was even higher than with gold, reaching 0.62.

Only this time: the correlation with gold has surpassed 0.6, while the correlation with Nasdaq has dropped below 0.25. This combination is unprecedented.

If we interpret correlation as the market's logic for pricing BTC, then in these three periods of high correlation with gold, this time represents the purest "anti-devaluation hard asset" pricing structure.

If we take a closer look at the relationship between the gold correlation coefficient and cycles, we see a recurring phenomenon:

After BTC retracts more than 25% from its previous high, the 60-day correlation coefficient with gold quickly rises above 0.4 from a low position. Historically, this has occurred four times: December 2018, October 2022, September 2024, and June 2026. The first three signals all fell near significant bottom zones. If history rhymes again, 57K to 58K is likely the bottom zone of this cycle.

This phenomenon is intriguing. Although BTC is dubbed digital gold, looking at historical data, the long-term median correlation with Nasdaq is 0.45, while with gold, it is only 0.12. Typically, it does not resemble gold at all, but rather a high-volatility beta tech stock.

So why does BTC exhibit a surge in correlation with gold at the end of each cycle?

My hypothesis is: there are two factions of capital playing BTC, with completely different operational logics.

One faction treats it as a high-risk growth stock for short-term trading; when this faction is in control, BTC's movements are tightly bound to Nasdaq.

The other faction genuinely treats it as a long-term asset against fiat currency devaluation, adhering to the "digital gold" narrative.

During price declines, the first group of short-term traders exits the fastest. When the price falls into the bottom zone and the chips gradually concentrate in the hands of the second group of long-term holders, the market's pricing power shifts.

As more buyers use the "hard asset" logic to price BTC, the narrative of digital gold is also brought back into play, resulting in BTC's movements increasingly synchronizing with gold.

Karma Index Reveals the Cycle Position in the Early Bull Market

If the gold correlation coefficient is observed from an external macro perspective to analyze BTC's current pricing logic, then the Karma Index assesses whether this round of consolidation is sufficient from the perspective of market sentiment and cycle position.

The Karma Index is a cyclical indicator developed by CoinKarma, integrating nine dimensions such as market liquidity, funding rates, on-chain costs, app rankings, and search popularity, synthesizing a market thermometer from 0 to 100 to measure the position in the larger cycle. A value above 80 indicates overheating, while below 20 indicates extreme panic.

From the above chart, we can see that before this rise, the Karma Index remained low for an extended period, with multiple dips into the extreme panic zone below 20, similar to the emotional characteristics of past significant bottoms.

Since 2017, "BTC has risen over 20% in a single week" has occurred 27 times, including this time, making it the 28th occurrence.

In the previous 27 instances, if one chased the price after the surge, the median return six months later was only +3.6%, while randomly buying on any trading day during the same period yielded a median return of +13.9%. Thus, "chasing after a single-week surge of 20%" has shown no advantage based on historical samples.

However, when considering the Karma Index, the situation changes completely: the average Karma Index in the 60 days before the rise was below 30, with only 8 instances meeting this criterion, resulting in 6 wins and 2 losses, giving a win rate of 75%, with the median return soaring from +3.6% to +49.4%.

Looking at Nasdaq, the results are even more interesting.

Among the aforementioned 8 instances, only 3 occurred when Nasdaq did not rise concurrently, yet BTC still achieved over 20% gains:

In December 2018, it rose +124.3% six months later.

In May 2019, it rose +30.2% six months later.

In October 2023, it rose +93.7% six months later.

These three instances occurred at the bottom of a bear market, the starting point of a main wave, and the starting line of an ETF bull market, all maintaining positive returns six months later.

This time, the average Karma Index in the 60 days before the rise was only 19.5, ranking third lowest among the 9 low sentiment samples, while Nasdaq fell by 2.1% during BTC's surge.

In other words, this also fits the structure of "BTC breaking away from Nasdaq to surge independently after a long period of low sentiment consolidation," marking the fourth occurrence in history.

Putting all the previous data together, we can summarize two points:

First, the correlation between BTC and gold has risen to a historically rare level. In the past, such signals after significant retractions have almost always fallen near important bottoms.

Second, the Karma Index indicates that this round of consolidation has been quite sufficient. Historically, when the market has been in low sentiment for a long time before surging, subsequent performance is usually much better than simply chasing prices.

One looks at cross-asset pricing, while the other observes cycle sentiment; both support the notion that we are in the early stages of a bull market.

Many people are currently fearful of heights because BTC has been in a bear market for too long, and everyone has become anchored.

Especially recently, while U.S. stocks and gold have been rising daily, BTC has been declining. After being tossed around for so long, it’s natural to feel that every rebound is a chance to escape, and the faster it rises, the less inclined one feels to buy.

However, looking at the movements of the past two weeks, BTC's relative strength has clearly changed. It is not only stronger than U.S. stocks but has also left gold behind.

The most tormenting aspect of a bear market is that no one knows how deep the bottom is. The end of 2018 is the most typical example. Many people tried to buy BTC all the way down from $6,000, only for it to be halved to $3,000, causing many to panic and sell off as soon as they broke even.

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

I believe we are at a similar buying point now; historically, all samples that meet the criteria of "high gold correlation + breaking away from U.S. stocks for independent movement + Karma Index consolidation" have all been in the early stages of a bull market.

What Kind of Bull Market Will This Be?

In the past few BTC bull markets, the fuel for the rise mainly came from the halving narrative and the spillover of U.S. dollar liquidity. The "digital gold" narrative has been mentioned in every round, but it often remains at the thematic level and rarely becomes the main storyline.

This time, I feel the situation is different.

Recently, the yield on 30-year U.S. Treasuries rose to 5.34%, reaching a new high since 2007. The higher the yield, the more investors demand higher returns to be willing to lend money to the U.S. long-term.

The U.S. is currently burdened with nearly $40 trillion in debt. The longer interest rates remain high, the heavier the cost of refinancing old debt becomes, pushing interest expenses higher and increasing the deficit, forcing the government to issue more debt.

These issues have actually existed for a long time, and what is more noteworthy is that the market has become very sensitive to this matter.

On August 19, the U.S. Treasury announced that it would at least double the liquidity support repurchase limit for long-term government bonds. After the news was released, long-term bond yields fell, and gold and BTC surged simultaneously. The market quickly interpreted this as the Treasury's willingness to inject liquidity to maintain the normal operation of the long-term bond market.

By September 4, the direction had completely reversed. The U.S. non-farm payrolls increased by 162,000, far exceeding the market expectation of 56,000, and the interest rate hike probability was pushed to 65%. U.S. bond yields rose rapidly, the dollar strengthened, and U.S. stocks, gold, and BTC were all hit hard.

A few months ago, a non-farm payroll report might not have caused such a significant reaction across the entire market. Now the wind has clearly changed; everyone is fixated on the Fed, long-term bond yields, and liquidity, and the market's nerves are already taut.

For the asset market, the U.S. debt issue will likely be traded into two paths.

The first path is to rely on AI to expand the pie. With increased productivity, corporate profits, and economic growth outpacing debt expansion, the proportion of debt to GDP will naturally decline.

The second path is to 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.

In the past few years, the market has bet heavily on the first path, which is the productivity revolution brought by AI. If the market starts to shift more attention back to debt, liquidity, and fiat currency purchasing power, anti-devaluation trades are likely to return to the center of the market.

The scope of this issue is very broad. All individuals holding cash, government bonds, pensions, and fiat currency assets globally face the same question: how much purchasing power will the money in hand have left in ten years? As long as the market begins to doubt whether sovereign debt can expand without continuously diluting the currency, funds will naturally seek assets with limited supply that cannot be arbitrarily issued.

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

In the past, even if institutions recognized BTC as digital gold, they still had to deal with a series of issues such as exchanges, private keys, custody, legal compliance, and accounting. However, the recently approved spot ETF has truly paved the way for this.

Now, asset management companies, family offices, retirement funds, and even general brokerage accounts can directly allocate BTC using familiar financial instruments. The narrative has long existed. This time, there are compliant entry points capable of accommodating large amounts of funds.

This is also why the synchronization of BTC and gold in this round is more noteworthy than in the previous two instances. The correlation with gold has risen to historically rare highs, while the Nasdaq correlation remains low. From the perspective of the upward logic, this may be the closest BTC has ever been to gold in history.

If "anti-fiat currency devaluation" really evolves from a topic that has been speculated on in every previous round into the main line of the next market phase, the pool of funds facing BTC will be completely different.

If this round of BTC begins to absorb the risk-averse demand for currency credit, sovereign debt, and declining purchasing power in global asset allocation, it could represent the largest influx of funds in BTC's history.

If this macro main line truly unfolds, what we are seeing now may just be the starting point of a major bull market.