Stocks, Bitcoin rise in tandem, challenging decoupling thesis

2nd May 2025 – (Hong Kong) Equities and Bitcoin rallied in unison, prompting questions about the narrative of a “decoupling” between the two asset classes. The synchronized movement raises the possibility of both markets reaching new highs. Despite weak U.S. manufacturing data, Federal Reserve liquidity plans and strong corporate earnings are supporting both equities and cryptocurrencies. The total cryptocurrency market capitalization has increased by 8.5% since March.

Cryptocurrency traders have emphasized the need for crypto to demonstrate a clear “decoupling” from the stock market. However, over the past 10 days, the intraday movements of Bitcoin and major altcoins have closely mirrored those of the S&P 500, even amidst trade war developments.

A decoupling would validate digital assets as an independent asset class and alleviate concerns about a potential global economic recession. The ongoing correlation has led to questions about whether the cryptocurrency market will perpetually follow the stock market’s lead and what conditions are necessary for a genuine decoupling.

The S&P 500 reached its peak on Feb. 19 and has struggled to reclaim the 5,800 level. Despite trade tensions between the U.S., Canada, and Mexico, as well as new tariffs, equities have shown resilience.

Chinese state media recently reported that the U.S. has quietly initiated trade negotiations. While China maintains a 125% retaliatory tariff on U.S. imports, it has granted waivers for sectors such as ethane, semiconductors, and certain pharmaceuticals. The U.S. has partially exempted automakers from new tariffs, suggesting gradual concessions from both sides.

The S&P 500 may have established a bottom at 4,835 on April 7, with further gains from the current 5,635 level possible. The stock market has reacted positively to strong first-quarter earnings, as companies adapt to tariffs by relocating production or expanding operations within the U.S.

Microsoft reported a 13.2% year-over-year increase in revenue, with higher margins and strong demand for artificial intelligence. Meta also exceeded market expectations on April 30. These results have eased concerns about an AI bubble or the impact of the trade war on corporate investment.

The market’s focus is shifting to the Federal Reserve’s next policy moves, rather than the recent decline in U.S. PMI manufacturing data. After a year of balance sheet reduction, the Fed is considering asset purchases to ease selling pressure.

Increased liquidity typically benefits risk-oriented assets. Therefore, even without a full decoupling, cryptocurrencies could benefit from a more supportive macroeconomic environment.

Despite the short-term correlation, the cryptocurrency market has outperformed equities in recent months. Since March, the total crypto market capitalization has risen by 8.5%, while the S&P 500 has declined by 5.3%. Over a six-month period, the divergence is even more pronounced: the total crypto market cap is up 29%, while the S&P 500 is down 2%. This suggests that the markets do not move in perfect synchrony, particularly over longer timeframes.

It is still premature to declare a definitive bottom for the S&P 500 or to conclude that the trade war has been resolved. An economic recession would likely negatively impact both markets. However, the current strength in equities indicates reduced risk aversion among investors. For the time being, the elevated correlation between cryptocurrencies and stocks may represent the most favourable scenario.