Breaking Bitcoin’s Correlation With Macro

Crypto Is Macro (At Least Partially)

Historically, BTC’s returns have been driven by three separate factors and, two months into 2025, it is clear how each of those factors can individually impact price-action. These three drivers are: macro, regulation, and supply and demand. In the past, these drivers have often aligned to collectively influence BTC’s price movements in a single direction.

In 2022, for example, all three worked against Bitcoin. On the supply and demand side, the supply effect of the Bitcoin halving on price had waned away by 2022, and the collapse of FTX meant consumer demand for crypto-risk was at a low. In macro, the Fed had begun its hiking cycle and, from a regulatory standpoint, the SEC levied numerous enforcement actions against the crypto industry.

In 2025, the macro environment has once again taken a slightly more hawkish turn for risk-on assets, however the remaining two factors remain significant tailwinds for Bitcoin. As such, we believe there is the potential for Bitcoin to break-away from its current correlation with equities which could suffer from the macro picture, and instead be driven by the alternative tailwinds, which we will explore in more detail through this report.

The Headwinds

The first major driver for crypto is macroeconomic conditions, as BTC emerged as a macro-sensitive asset at the onset of the Covid pandemic. Following a brief hiatus in that trend when the Fed began its hiking cycle in 2022, the correlation returned in strength with the launch of the Bitcoin Spot ETFs.

Following the brief post-election exuberance, much of December 2024 and early January 2025 saw Bitcoin lack a clear directional catalyst which in turn left it at the behest of macro drivers – persistent inflation in the US, concerns from an evolving tariff program, and uncertainty surrounding wider fiscal policy have resulted in a more hawkish Fed. Chair Powell has made it clear on several occasions that policymakers are in no rush to cut interest rates further, following 100bps of reductions since September 2024. Markets now price in one interest rate cut in September 2025, fewer than the two forecast by FOMC participants in December.

The hawkish Fed rhetoric meant that the macro drivers had turned slightly less bullish for risk-on assets as the year began. Furthermore, the past few macro events that have impacted price (the launch of DeepSeek’s LLM renewing fears of a US tech equity bubble and the official tariffs announcement on Canada, Mexico and China) have done so negatively. With many of those events occurring on weekends, BTC was the first to react, with US equities, such as the S&P 500, following suit at the market bell. BTC’s 90-day rolling correlation with the S&P 500 has been ranging at the 0.5 mark, close to its historical highest as both of the aforementioned events led to a slashing of risk-on sentiment across the board.

BTC’s relationship with US equities isn’t just exclusive to the S&P 500 either. Below we plot the relationship between 7-day changes in BTC’s spot price and changes in the Nasdaq-100, a more tech-heavy basket of assets. BTC has tended to rise when the NDX has risen and equally both tend to fall with one another.

There is an even stronger relationship when regressing the spot levels of BTC and NDX. That relationship has strengthened post-2020 and particularly through 2024 and the New Year. An R^2 value of 0.81 equally showcases the strength of the relationship.

Finally, in the chart below we plot Bitcoin’s minutely spot price alongside its 30 minute realised volatility. One long held truism that crypto markets are no exception to is that markets do not like uncertainty. On the weekend of the 1st of February, after some mixed reports regarding the implementation of President Trump’s tariff plans, Trump signed an executive order to impose 25% tariffs on Canadian and Mexican imports, and an additional 10% tariff on Chinese imports. All three nations subsequently promised retaliatory measures.

Though the tariffs on the former two countries were eventually repealed for 30 days, the news resulted in Bitcoin falling over 4% down to $97K over the weekend, a foreshadowing of market sentiment for when Trad-Fi markets would open. The red spike in realized volatility to over 350% was exactly that – as Asian equity markets opened, BTC fell even further bottoming out at $92K.

Breaking The Macro Correlation

Some Macro Tailwinds?

Macro factors have been key drivers for crypto-asset price action in late 2024 and early 2025, and the more hawkish macro backdrop may continue to exert negative pressure on risk-on sentiment. But even amongst the macro headwinds facing crypto, there is one tailwind driver that may see BTC decouple from its correlation with US equities.

President Trump’s continuous threat of tariffs has amplified concerns of higher inflation in the US. The January CPI print has equally added to the trend of persistent, sticky inflation running at levels hotter than desired by the Fed. Additionally, the consensus view of economists and the market is that tariffs may stall the economic growth of the US. The confluence of these factors have resulted in higher long-term US treasury yields, with the 10-year treasury yield having increased from 3.7% (when the Fed first began its cutting cycle) to 4.52%.

Whilst most Western nations are fighting inflation, China on the other hand has been tackling the opposite problem of deflation since 2023. Chinese authorities have ramped up both monetary and fiscal measures in response to fears that the Chinese economy would fail to meet its growth targets. The People’s Bank of China (PBOC) announced an aggressive monetary stimulus package in late September 2024: lowering key short-term interest rates, easing the reserve requirement ratio by 50bps, and introducing new tools such as a swap facility to help financial institutions get access to cheap funding to buy domestic equities. They announced a paradigm shift from “prudent” monetary policy to “moderately loose”, a stance last seen in the nation during the Great Financial Bazooka Stimulus response in 2008. Finally, the PBOC (at least up until January this year) had also conducted numerous billions of yuan in bond purchases on the open market to inject liquidity into the economy, and introduced a new monetary policy tool: the reverse repurchase agreement to provide additional short-term liquidity to banks for lending.

On the fiscal side, the government confirmed a 10 trillion yuan debt stimulus in November 2024 which according to Chinese policymakers will allow local governments to reduce their hidden debt from over 14 trillion yuan down to “2.3 trillion yuan by 2028”.

The outcome of these measures? A 300bps spread between Chinese 10 year yields and their US counterparts. This widening yield differential appears to have supported BTC despite US treasury yields rising higher.

A linear regression between daily BTC spot prices and this interest-rate spread also confirms that throughout the course of 2024, the widening yield differential has coincided with a higher BTC spot price.

Why is this the case? One possible explanation for future analysis is that as borrowing in China becomes cheaper, the offshore Chinese yuan CNH may offer as a funding currency for trades in risk-on assets in a carry trade.

Everything Else

Policies in China may be one tailwind in the macro picture, but Bitcoin benefits from two additional drivers that are unique to the crypto asset class, and firmly supportive of continued BTC performance. These two categories of drivers will be crucial in driving a break-away from the macro relationship with equities long-term.

Starting with idiosyncratic factors. Looking at historical cycles (we note this is a small sample), it has typically taken around 150-200 days post-halving before BTC really began to rally. Additionally, BTC made its retrospective peak for the cycle around the 350 days after the halving. We are slightly over the 300 day mark since the April 19th halving date and notice that the supply effect from the halving has failed to post the same level of returns in this cycle as its predecessors had seen. BTC has also underperformed all previous cycles, as by this point post-halving it had typically rallied between 2-10x. Whilst returns have clearly been diminishing with each cycle, historical precedent would suggest there is more upward room.

The halving is a supply side tailwind that has historically benefited Bitcoin. The other side of that equation is demand: alongside the halving, previous cycles also witnessed a new sea of investors providing tailwinds to demand.

In this cycle, the fuse in the box appears to be institutional players. The Spot ETFs have provided the most convenient access to Bitcoin yet. The Q1 2024 rally coincided with strong inflows into the Bitcoin ETFs following their January launch. As that demand saturated, BTC’s spot price ranged. Following the Republican election victory, the tide changed again – some of the largest days of inflows to date were on the 7th and 11th of November, coinciding with a BTC rally that saw price exceed its March 2024 high.

Institutional interest has not just been limited to ETF access. The chart below shows net ETF inflows in addition to purchases made by MicroStrategy (now called Strategy). Their Bitcoin fundraising techniques have encouraged other corporations to follow suit, such as Marathon Digital and Metaplanet. In 2025 so far, Strategy and Bitcoin Spot ETFs have on net purchased close to 90,000 bitcoin, while approximately only 18,000 bitcoins were mined over the same period.

In our December volatility review we highlighted that many call options with strikes beyond $100K expired OTM, which posits evidence that for many traders, their lofty price target for BTC has not yet been reached (figure _) and that their demand for upward exposure may continue.

A New Era

Changes in the regulatory landscape are also related to the supply and demand side factors discussed in the previous section. Senator Lummis’ BITCOIN Act – one proposal for how the U.S. government may develop a strategic Bitcoin reserve, quickly tapered down to a state level: Pennsylvania introduced a Bitcoin Strategic Reserve Act, and the states of Michigan and Wisconsin are already invested in Bitcoin and Ethereum Spot ETF products. North Carolina recently became the latest of 19 states that have introduced crypto legislation for some variation of a digital assets reserve. We cannot better describe how a more favourable regulatory backdrop will support digital assets than the following quote from President Trump’s Crypto & AI Czar David Sacks during the Crypto Ball: ““The reign of terror against crypto is over”.

Additionally in late January, President Trump passed the ‘Strengthening American Leadership in Digital Financial Technology’ executive order (EO). This is designed to support the growth of digital assets whilst protecting the sovereignty of the US Dollar as well as prohibiting the creation of a CBDC. The crypto ‘Working Group’ chaired by Sacks was introduced in that EO too. Notably, the group which will consist of high-ranking officials from the SEC, CFTC and the Treasury, will evaluate creating a national digital asset stockpile (which may not be limited to just Bitcoin).

Alongside that EO, the new SEC administration introduced SAB 122, designed to eliminate the SAB 121 guidance. SAB 121 guided banks and other crypto custodians to treat digital assets as liabilities on their balance sheet, thus increasing their liquidity requirements. SAB 122 repealed the previous bulletin, now making Bitcoin custody easier and potentially opening up the asset class further.

Additionally, the SEC’s recently introduced Crypto Task Force, is planning to create a regulatory framework around crypto that will preserve the industry’s ability to offer innovative products and services, including modifying existing exchange-traded products to potentially include staking. This introduces the possibility of an ETH-staking enabled ETF and additional single token Spot ETFs. The demand for such single token ETF exposure definitely appears to be in place too. President Trump’s Media and Technology Group announced plans for a Bitcoin Plus ETF, Grayscale Investments recently filed for an ADA ETF, and REX Advisers filed to launch several separate ETFs tied to President Trump’s memecoin, the $TRUMP coin, as well as other other notable meme tokens, including DOGE and BONK.

The Signs Are There

Supply and demand structural factors, alongside a more crypto-friendly regulatory landscape, have (and we believe will continue to) support BTC. We have seen some signs that these factors are already helping break the macro correlation in 2025. Earlier in the year, in mid-January, an incredibly strong December Nonfarm payroll report and JOLTS report resulted in a sell-off in US equities. BTC initially sold off towards $92K before quickly regaining the $95K level again. This is a very different reaction to the yen carry trade unwind in August 2024 for example, where BTC led the move before equities, and subsequently failed to get back to the same levels, after equities quickly recovered.

Additionally, Bitcoin’s run to a new ATH of $109K in January was not driven by macro fundamentals – instead it coincided with speculation that President Trump would announce an executive order regarding a Strategic Bitcoin Reserve in his inauguration speech, though these expectations were disappointed.

This Time Could Be Different

To summarise, Bitcoin returns have historically been driven by three factors: macro, regulations and supply-demand drivers. In 2022, all three price factors were working against Bitcoin spot price. In 2025, as the market prices-in a slower than anticipated rate cutting cycle from the Fed, the macro picture has taken a slightly more hawkish turn. Recent macro events such as the launch of DeepSeek and uncertainty around a potential tariff war further added to the risk-off sentiment. The latter in particular may continue to weigh on US equities.

Given Bitcoin’s strong correlation with major US equities, one would expect it to feel the same pressure from these macro headwinds. However, we are of the view that the short-term macro headwinds will not detract from a longer-term more positive outlook driven by the two other major tailwinds in Bitcoin’s direction: namely idiosyncratic supply and demand factors which have driven previous cycles and are unique to Bitcoin, as well as a pro-crypto regulatory landscape which will open the floodgates for more crypto activity.

Additionally, even amongst the macro headwinds, the policies of Chinese authorities and their subsequent effect on the yield differential between 10-year US yields and 10-year Chinese yields may support Bitcoin. With this macro factor and the two additional drivers, it could be the case that this time is different and Bitcoin detaches from its correlation to these risk-on macro assets, outperforming US equities and continuing to rally even if they sell-off.