Author: Benson Sun (@BensonTWN)

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

First, the conclusion: I believe that what lies ahead is not just a bull market but a major level bull market.

The Golden Blood of Bitcoin Has Completely Awakened

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%.

For the past few years, people have used BTC as a high Beta tech stock. In a risk-on environment, BTC surged alongside the stock market; when liquidity contracted, BTC typically fell even faster.

But this time, the trend was 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 soared, reaching a high of 0.636, close to its historical peak (0.64 in November 2020, with a long-term median of only 0.12). At the same time, the correlation between BTC and Nasdaq has decreased, hitting a low of 0.13, and currently rebounding to 0.22.

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

In retrospect, August 2020 was just before the main surge of the bull market. At that time, BTC was hovering around $10,000 - $12,000, and a few months later broke the previous high, ultimately soaring to $64,000, achieving a maximum return of +458%.

In October 2022, the situation was more tumultuous; originally, BTC was consolidating around $20,000. In November, the FTX collapse acted as a black swan, bringing the price down to $15,700. However, viewing the complete cycle, October 2022 fell within long-term bottom zones. Calculating from the signal price level at the time, the ensuing maximum increase to the subsequent high of 73K reached +276%.

Now, we are in the third period of high correlation between BTC and gold in history, but if history tends to rhyme, now might just be the starting point of the bull market.

This time, there is another significant difference.

During the previous round in 2020, the median correlation between BTC and Nasdaq was still 0.44, amidst a comprehensive QE environment, where all assets were 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.

This time alone: 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 the three high gold correlation periods, 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 will notice a recurring phenomenon:

After BTC's price retraces more than 25% from a previous high, the 60-day correlation coefficient with gold quickly rises from a low point, breaking above 0.4. Historically, this has occurred four times: December 2018, October 2022, September 2024, and June 2026. For the first three signals, all later fell near important bottom zones. If history rhymes again, 57K to 58K could very well be the bottom zone of this cycle.

This phenomenon is intriguing. Although BTC claims to be digital gold, examining historical data shows that the long-term median correlation of BTC with the Nasdaq is 0.45, while with gold it is only 0.12. Normally, it does not behave like gold but rather like a highly volatile beta tech stock.

So why is there a surge in gold correlation at the tail end of each cycle's bottom?

My hypothesis is: there are two factions of funds in the market playing BTC, with completely different operational logics.

One faction treats it as a high-risk growth stock for short-term trading; when this faction has the say, BTC’s movements are tightly bound to Nasdaq.

The other faction genuinely regards it as a long-term asset to "combat fiat currency devaluation," that is, funds adhering to the 'digital gold' narrative.

During a price drop, the first batch of short-term funds exits the quickest, and when prices dip into the bottom zone and chips slowly concentrate in the hands of the second batch of long-term investors, the market's pricing power shifts.

As more buyers price BTC using the "hard asset" logic, the narrative of digital gold emerges again, leading the market to exhibit increasingly synchronized movements between BTC and gold.

Karma Index Reveals the Cycle Position in the Early Bull Market

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

The Karma Index is a cyclical indicator developed by CoinKarma, synthesizing nine dimensions: market liquidity, funding rates, on-chain costs, app rankings, and search heat, to create a market thermometer ranging from 0 to 100, measuring the position in large cycles. A score above 80 indicates overheating, while below 20 denotes extreme panic.

As seen in the above chart, before this surge, the Karma Index was at a low level for an extended period, repeatedly falling below 20 into the extreme panic zone, similar to the emotional characteristics at past major bottoms.

Since 2017, the occurrence of "BTC rising over 20% in a single week" has happened 27 times, this being the 28th time.

For the previous 27 occurrences, if one chased high after the rapid rise, the median return six months later was only +3.6%. In contrast, if one randomly bought on any trading day during the same period, the median return six months later was +13.9%. Thus, "chasing high after a 20% weekly surge" has shown no advantage historically.

However, when considering the Karma Index, the situation changes entirely: the average Karma Index in the 60 days before the surge was below 30, with only eight instances qualifying, comprising 6 wins and 2 losses, giving a win rate of 75%, and the median return jumped from +3.6% to +49.4%.

Looking at Nasdaq yields even more interesting results.

Out of the aforementioned eight events, only three occurred where Nasdaq did not rise concurrently, yet BTC itself achieved over a 20% price increase:

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

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

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

These three instances occurred at the major market bottom, the starting point of the main surge, and the starting line of the ETF bull market, each maintaining positive returns six months later.

This time, the average Karma Index in the 60 days before the surge was only 19.5, ranking as the third lowest among the nine low emotion samples, while Nasdaq fell 2.1% during the period when BTC surged.

In other words, this also fits the structure of "BTC experiencing an independent surge away from Nasdaq after a prolonged low sentiment phase," marking the fourth instance in history.

Putting all the preceding data together leads to two conclusions:

First, the connectivity between BTC and gold has risen to a historically rare level. Such signals have almost always appeared near significant bottoms after severe pullbacks.

Second, the Karma Index indicates that this round of consolidation has been quite sufficient. Historically, markets that surge after prolonged low sentiment tend to perform better than those that merely chase highs.

One perspective examines cross-asset pricing, while the other focuses on cyclical sentiment, both supporting the notion that we are in the early stages of a bull market.

Many people are now fearful of heights because BTC endured a long bear market, and everyone has been anchored in that mindset.

Especially during the period when both the stock market and gold daily rose while BTC continually fell. After enduring significant volatility, it is only natural to view every rebound as a chance to escape, with faster gains leading to less inclination to buy.

However, examining the recent two weeks' movements reveals that BTC's relative strength has significantly changed. It is not only stronger than the stock market but has also left gold behind.

The most torturous aspect of a bearish market is that no one knows how deep the bottom is. The end of 2018 serves as the most typical example. Many people bought in as BTC fell from $6,000, only to see it halve to $3,000, with many panicking and selling everything at mere break-even.

In hindsight, the most comfortable buying point during that holding phase was actually when BTC suddenly surged from just above $3,000 to $4,000. Although the cost was higher than the lowest point, the certainty was much greater because the subsequent main surge was about to begin.

I believe we are now at the same buying point; throughout history, all samples that fit the criteria of "high gold correlation + detachment from stock market independence + Karma Index consolidation" have been the early stages of a major bull market.

What Kind of Bull Market Will This Be?

In past BTC bull markets, the primary fuels for the rise have come from the halving narrative and the spillover of dollar liquidity. The "digital gold" narrative has been mentioned in every round but has rarely become the main storyline.

This time, I feel the situation is different.

Recently, the yield on the 30-year U.S. Treasury bonds rose to 5.34%, marking the highest level since 2007. Higher yields indicate that investors demand greater returns to lend money to the U.S. long-term.

The U.S. now bears nearly $40 trillion in debt. The longer rates remain high, the heavier the costs of refinancing old debt after it matures become, with interest expenditures continuing to push up the deficit, prompting the government to issue more bonds.

These issues have existed for a long time, but it is noteworthy that the market has become highly sensitive to them.

On August 19, the U.S. Treasury announced it would at least double the liquidity support repurchase limit for long-term government bonds. Following the announcement, long bond yields retreated, and both 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 bond market.

By September 4, the direction had completely reversed. The U.S. non-farm payrolls added 162,000 jobs, far exceeding the market expectation of 56,000, pushing the interest rate hike probability to as high as 65%. U.S. bond yields quickly rose, the dollar strengthened, and the stock market, gold, and BTC were all hit hard.

A few months ago, a single non-farm data release might not have provoked such a significant market reaction. The sentiment has clearly shifted; everyone is now fixated on the Fed, long bond yields, and liquidity, with the market's nerves tightly strung.

For the asset market, the U.S. debt issue will likely be traded in two ways.

The first is through AI to expand the pie. Improving productivity, corporate profits, and economic growth outpacing debt expansion will naturally reduce the debt-to-GDP ratio.

The second is via monetary expansion and inflation, gradually diluting the real value of debt. The former corresponds to AI stocks, while the latter corresponds to gold and BTC.

In recent years, the market has bet heavily on the first path, namely the productivity revolution driven by AI. If the market starts to shift more attention back to debt, liquidity, and the purchasing power of fiat currency, the anti-devaluation trade is likely to come back to the forefront.

This issue has wide-ranging implications. All individuals holding cash, government bonds, pensions, and fiat currency assets worldwide face the same question: how much purchasing power will the money they have hold a decade later? As soon as the market starts to doubt whether sovereign debt can expand without continuously diluting currency, capital will naturally seek out assets with limited supply that cannot be arbitrarily inflated.

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

Previously, even if institutions recognized BTC as digital gold, they still had to deal with a whole series of issues such as exchanges, private keys, custody, compliance, and accounting. The recently passed spot ETF has effectively paved this route.

Now, asset management companies, family offices, pension funds, and even typical brokerage accounts can directly allocate BTC using familiar financial instruments. The narrative has long existed. This round has added compliant entry points capable of accommodating large funds.

This is why the current synchronization between BTC and gold is more noteworthy than in the previous two rounds. The correlation with gold has reached a historically rare high, while the correlation with Nasdaq remains low. From the perspective of upward logic, this may represent BTC's closest historical alignment with gold.

If "anti-fiat currency devaluation" truly transitions from a narrative that gets discussed every round into the next stage of market's main storyline, the pool of funds facing BTC will be completely different.

If this round of BTC begins to accommodate the hedging demand against declining currency credibility, sovereign debt, and purchasing power in global asset allocation, it could be the largest influx of funds in BTC's history.

If this macro narrative unfolds completely, what we see now is likely just the starting point of a major bull market.