Author: Benson Sun, former FTX community partner
In the week of August 22, BTC surged by 24%. The market was buzzing: has the bull market arrived? Many people still held skeptical views on this.
Let’s get to the conclusion: I believe what lies ahead is not just a bull market, but a large-scale bull market.
The golden bloodline of Bitcoin has completely awakened
Let’s start with something quite unusual.
In the same week BTC skyrocketed, gold rose by 5.6%, and the Nasdaq fell by 2.1%.
Over the past few years, people have tended to view BTC as a high Beta tech stock. When the US stock market is risk-on, BTC surges; when liquidity constricts in the stock market, BTC usually falls even faster.
But this time, the movement is different; after August 17, both BTC and gold strengthened simultaneously, while the Nasdaq stayed put.
In fact, since May, the 60-day correlation coefficient between BTC and gold has soared, peaking at 0.636, approaching the historical high point (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 been decreasing, dropping to 0.13, and is currently recovering to 0.22.
How rare is it for this orange line to sit above 0.5? Since BTC started trading, qualifying trading days have only accounted for 2.2%. Before this round, it had only occurred during two periods in history: August 2020 and October 2022.
Looking back in retrospect, August 2020 was just before the main launch of the major bull market. At that time, BTC was hovering around $10,000 - $12,000 and broke through the previous high months later, finally soaring to $64,000, yielding a maximum profit of +458%.
October 2022 was a bit bumpier; BTC had originally bottomed around $20,000. In November, the FTX collapse turned into a black swan event, dropping the price to $15,700. However, considering the complete cycle, October 2022 already landed in a long-term bottom zone. From the signal price point at that time, the maximum increase to the subsequent 73K high reached +276%.
Now, we are witnessing the third period in history where BTC is highly correlated with gold, but if history tends to rhyme, this might just be the starting point of a bull market.
Moreover, there’s a significant difference this time.
During the 2020 round, the median correlation of BTC with Nasdaq was still 0.44, under a comprehensive QE environment where all assets were pushed up by the same liquidity.
In 2022, the correlation of BTC with Nasdaq was even higher than with gold, reaching 0.62.
However, this time: the correlation with gold has surpassed 0.6, while the correlation with Nasdaq has dropped below 0.25. This combination has never happened before.
If we interpret correlation as a market logic for pricing BTC, then in the three periods of high correlation with gold, this time presents the purest pricing structure as "anti-devaluation hard asset."
If we take a closer look at the relationship between gold correlation and cycles, we notice a recurring phenomenon:
When BTC has dropped more than 25% from its previous high, the 60-day correlation coefficient with gold quickly rises above 0.4. Historically, this has occurred four times: December 2018, October 2022, September 2024, and June 2026. The first three signals all occurred near important bottom zones. If history rhymes again, the range of 57K to 58K is likely to be the bottom of this cycle.
This phenomenon itself is quite interesting. Although BTC is called digital gold, historical data shows that the long-term median correlation of BTC with Nasdaq is 0.45, while with gold it’s only 0.12. Usually, it doesn't resemble gold at all, but rather a highly volatile beta tech stock.
So why does BTC always show a surge in gold correlation at the end of every cycle?
My hypothesis is that there are two types of capital in the market playing with BTC, operating under completely different logics.
One type is the short-term trading capital treating it as a high-risk growth stock, and when this type calls the shots, BTC moves in tandem with Nasdaq.
The other type genuinely views it as a long-term asset “to resist fiat currency depreciation,” essentially believing the narrative of “digital gold.”
During the price drop, the first wave of short-term capital exits the fastest, and when the price falls into the bottom zone, gradually concentrating the chips in the hands of the second wave of long-term players, the market's pricing power shifts to the new players.
As more and more buyers use the logic of "hard assets" to price BTC, the narrative of digital gold also resurfaces, ultimately leading to an increasingly synchronized trend between BTC and gold.
Karma Index reveals the cycle position at the early stage of the bull market
If the correlation with gold is an external macro perspective on BTC’s current pricing logic, then the Karma Index assesses whether this round of washout is sufficient from the perspective of market sentiment and cycle position.
The Karma Index is a periodic indicator developed by CoinKarma, integrating market liquidity, funding rates, on-chain costs, app rankings, and search popularity across nine dimensions, forming a market thermometer ranging from 0 to 100 to measure the grand cycle position. Above 80 indicates overheating, while below 20 indicates extreme panic.
From the image above, it can be seen that prior to this upsurge, the Karma Index had been at low levels for an extended period, frequently dipping into the extreme panic zone below 20, reflecting characteristics similar to past significant bottoms.
Since 2017, BTC has increased by more than 20% in a single week 27 times, including this time as the 28th occurrence.
In the previous 27 instances, if investors chased highs after the surge, the median return after six months was only +3.6%, while the median return for randomly selecting any trading day during the same period and buying would be +13.9%. Therefore, historically speaking, “chasing highs after a single week surge of 20%” shows no advantage.
However, if the Karma Index is taken into account, the situation changes completely: the average Karma Index in the 60 days prior to the surge was below 30, leaving only 8 qualifying instances, totaling 6 wins and 2 losses, with a winning rate of 75%, and the median increased from +3.6% to +49.4%.
Looking at the Nasdaq, the results are even more interesting.
Among the aforementioned 8 instances, only 3 occurred without a concurrent rise in Nasdaq, where BTC still surged over 20%:
December 2018, six months later up +124.3%.
May 2019, six months later up +30.2%.
October 2023, six months later up +93.7%.
These three instances occurred at the bear market bottom, the main uptrend starting point, and the ETF bull market starting line, all maintaining positive returns six months later.
Now, this time, the average Karma Index in the 60 days prior to the surge is only 19.5, ranking third lowest among the 9 low sentiment samples inclusive of this one; during the same period when BTC surged, the Nasdaq declined by 2.1%.
In other words, this aligns with the structure of "BTC surging independently after a long period of low sentiment washout away from Nasdaq," marking the fourth instance in history.
By putting all the preceding data together, we can summarize two insights:
First, the connectivity between BTC and gold has risen to historically rare levels. Signals that arise after significant pullbacks have almost always landed near important bottom areas.
Second, the Karma Index indicates that this round of washout has been quite ample. Historically, markets tend to perform much better after a long-standing low sentiment period followed by a sudden surge, compared to simply chasing highs.
One looks at cross-asset pricing, the other at cycle sentiments; both support the interpretation that we are currently in the early stages of a bull market.
Many people currently fear heights because BTC has been in a bear market for too long, anchoring their expectations.
Especially during the recent period where US stocks and gold were rising daily, while BTC continued to decline. After being tossed around for so long, it’s natural to feel that each rebound is a chance to escape, and the faster it rises, the less inclined one feels to buy.
However, looking at the trends over the past two weeks, BTC's relative strength has clearly changed. It is not only outperforming the US stock market, but also leaving gold behind.
The most tormenting aspect of a bear market is that nobody knows how much lower the bottom can go. Late 2018 is a typical example. Many people were averaging down from $6,000 all the way down, and BTC was still able to halve to $3,000, leading many to become psychologically exhausted and sell off everything as soon as they broke even.
Looking back, the most comfortable buying point during that process was actually when BTC jumped from slightly over $3,000 to $4,000 unexpectedly. Although the cost was higher than the lowest point, the certainty was much greater, as the main upward phase was about to begin.
I believe now represents a similar buying point; in all historical samples qualifying as “high gold correlation + breaking away from the stock market with independent movement + Karma Index washout,” all have occurred in the early phases of bull markets.
What kind of bull market will it be?
In previous BTC bull markets, the primary fuel for the rises came from the halving narrative and the overflow of US dollar liquidity. The “digital gold” narrative has been discussed in each round, but mostly remaining at a thematic level, rarely becoming the main storyline.
This time, I feel the situation is somewhat different.
Recently, the 30-year US Treasury yield reached as high as 5.34%, the highest since 2007. The higher the yield, the more return investors demand to lend to the US for the long term.
The US currently carries nearly $40 trillion in debt. The longer interest rates stay high, the heavier the refinancing costs will be once old debts mature, continuing to push up interest expenses and increasing the deficit, meaning the government has to issue even more debt.
These issues have actually existed for a long time, but what’s noteworthy is that the market has started to become very sensitive to this matter.
On August 19, the US Treasury announced it would at least double the liquidity support repurchase cap for long-term bonds. After the announcement, 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 normal operations in the long-term bond market.
By September 4, the direction completely reversed. The US non-farm payrolls added 162,000 jobs, far exceeding market expectations of 56,000, causing interest rate hike probability to rise to 65%. Yields on US bonds rapidly increased, the dollar strengthened, and the stock market, gold, and BTC were all hit.
A few months ago, a single non-farm number would not have caused such a large reaction across the market. The sentiment has clearly changed; everyone is now closely monitoring the Fed, long bond yields, and liquidity; the market's nerves are taut.
For asset markets, the US debt issue will likely be traded along two paths.
The first path is to grow the pie using AI. If productivity improves, corporate profits, and economic growth outpace debt expansion, the ratio of debt to GDP will naturally decrease.
The second path is to slowly dilute the real value of debt through monetary expansion and inflation. The former corresponds to AI stocks, while the latter aligns with gold and BTC.
In recent years, the market has placed a significant amount of capital on the first path, i.e., the productivity revolution brought by AI. If the market begins to refocus its attention on debt, liquidity, and the purchasing power of fiat currency, anti-devaluation trades are likely to return to the center of the market.
This issue impacts a vast scope. Everyone holding cash, government bonds, pensions, and fiat assets globally will face the same question: how much purchasing power will the money in their hands have ten years from now? Once the market starts to doubt whether sovereign debt can expand without continuously diluting the currency, capital will naturally seek assets with limited supply and unable to be arbitrarily issued.
Gold is the most traditional answer. BTC is becoming another answer.
Previously, institutions that recognized BTC as digital gold still had to deal with a series of issues like exchanges, private keys, custody, compliance, and accounting. However, the recently approved spot ETF has genuinely 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 channels capable of handling substantial capital inflows.
This is also why the current synchronization between BTC and gold is more noteworthy than in the previous two times. The gold correlation has risen to historically rare high levels, while the Nasdaq correlation has remained low. From the perspective of upward logic, this might be the closest BTC has ever been to gold in its history.
If "anti-fiat currency devaluation" really evolves from a narrative that has been speculated upon in past cycles into the next market mainstream, the pool of capital BTC faces will be completely different.
If this round of BTC starts to accommodate global asset allocations for hedging against concerns about currency credit, sovereign debt, and declining purchasing power, this could represent the largest influx of capital in BTC's history.
If this macro main thread fully unfolds, what we see now may just be the starting point of a great bull market.
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