The Awakening of Bitcoin's Golden Bloodline: This Could Be the Start of the Largest Bull Market in BTC History

Author: Benson Sun, former partner at FTX

In the week of August 22, BTC surged by 24%. The market was abuzz with discussions: has the bull market arrived? However, many still held a skeptical attitude.

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

The Complete Awakening of Bitcoin's Golden Bloodline

Let’s start with something quite unusual.

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

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

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

In fact, since May, the 60-day correlation coefficient between BTC and gold has been soaring, 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 coefficient between BTC and the Nasdaq has been decreasing, dropping to a low of 0.13, and currently rebounding to 0.22.

How rare is it for this orange line to stand above 0.5? Since BTC has had trading records, only 2.2% of 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 situation was more tumultuous, as BTC was building a bottom around $20,000. In November, the FTX collapse occurred, and the price was smashed down to $15,700. However, from a complete cycle perspective, October 2022 had already fallen into a long-term bottom area. Calculating from the signal price at that time, the maximum increase to the subsequent 73K peak reached +276%.

Now, we are in the third period of high correlation between BTC and gold in history, but if history rhymes, this could 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 the Nasdaq was still 0.44, while it was under a comprehensive QE environment, with all assets driven up by the same liquidity.

In the 2022 round, the correlation between BTC and the 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 the Nasdaq has dropped below 0.25. This combination is unprecedented.

If we interpret correlation as the logic by which the market is pricing BTC, then in the three periods of high correlation with gold, this time represents the purest "hard asset against depreciation" pricing structure.

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

After BTC has retraced 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 important bottom areas. If history rhymes again, the 57K to 58K range could very well be the bottom area of this cycle.

This phenomenon itself is quite interesting. Although BTC is known as digital gold, when we look at historical data, the long-term median correlation coefficient between BTC and the Nasdaq is 0.45, while with gold it is only 0.12. Normally, it does not resemble gold at all, but rather a high-volatility beta tech stock.

So why does BTC always show a surge in correlation with gold at the end of each cycle's bottom?

My hypothesis is that 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, and when this faction is in control, BTC's trend is tightly bound to the Nasdaq.

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

During the price drop, the first batch of short-term capital exits the fastest. Once the price falls into the bottom area and the chips gradually concentrate in the hands of the second batch of long-term holders, the market's pricing power shifts.

As more and more buyers price BTC using the logic of "hard assets," the narrative of digital gold is also brought out for speculation, leading to BTC and gold trends becoming increasingly synchronized.

Karma Index Reveals the Cycle Position in the Early Stages of the Bull Market

If the correlation with gold is observed from an external macro perspective to assess 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 cyclical indicator developed by CoinKarma, integrating nine dimensions such as market liquidity, funding rates, on-chain costs, app rankings, and search popularity, to create a market thermometer ranging from 0 to 100, used to gauge the position of 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 surge, the Karma Index had been at a low level for a long time, frequently dipping below 20 into the extreme panic zone, resembling the emotional characteristics of past important bottoms.

Since 2017, there have been 27 instances of "BTC rising over 20% in a single week," including this one as the 28th.

In the previous 27 instances, if one chased the high after the surge, the median return six months later was only +3.6%, while randomly selecting any trading day during the same period yielded a median return of +13.9%. Therefore, historically, chasing after a single-week surge of 20% has shown no advantage.

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

Looking at the Nasdaq, the results are even more interesting.

Among the aforementioned 8 events, only 3 occurred when the Nasdaq did not rise during the same period, yet BTC still achieved over 20% gains:

• 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 start of the main wave, and the starting line of the ETF bull market, all 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 9 low sentiment samples, while during BTC's surge, the Nasdaq fell by 2.1%.

In other words, this also fits the structure of "BTC independently surging after a long period of low sentiment washout," 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 retracements have almost always occurred near important bottoms.

Second, the Karma Index indicates that this round of washout has been quite sufficient. Historically, when the market has lingered in low sentiment for a long time before surging, the subsequent performance usually far exceeds that of simply chasing highs.

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

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

Especially during the recent period, when U.S. stocks and gold were rising daily, BTC was continuously falling. After being tossed around for so long, it is natural to feel that every rebound is a chance to escape, and the faster it rises, the less willing one is to buy.

However, looking at the trends 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 torturous 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 from $6,000 all the way down, only to see BTC halve 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, as the main upward segment 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 + independent movement from U.S. stocks + Karma Index washout" have all been in the early stages of the main bull market.

What Kind of Bull Market Will This Be?

In past BTC bull markets, the main fuel for the rise has come from the halving narrative and the overflow of U.S. dollar liquidity. "Digital gold" has been mentioned in every round, but mostly remains at the thematic level, rarely becoming the main line.

This time, I feel the situation is different.

Recently, the yield on 30-year U.S. Treasuries rose to 5.34%, the highest 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 will be, pushing interest expenses higher and forcing the government to issue more debt.

These issues have actually existed for a long time, but what’s more noteworthy is that the market is becoming very sensitive to this matter.

On August 19, the U.S. Treasury announced it would at least double the liquidity support repurchase limit for long-term government 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 the normal operation of the long-term bond market.

By September 4, the direction 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 65%. U.S. Treasury yields rose rapidly, the dollar strengthened, and U.S. stocks, gold, and BTC were all hit.

A few months ago, a single non-farm payroll data point might not have elicited such a large market reaction. Now the winds have clearly changed, and everyone is closely watching the Fed, long-term Treasury yields, and liquidity; the market's nerves are already taut.

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

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

The second way is through monetary expansion and inflation to gradually dilute 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 placed a large amount of capital on the first path, namely the productivity revolution brought by AI. If the market begins to shift more attention back to debt, liquidity, and fiat purchasing power, the anti-depreciation trade is likely to return to the center of the market.

And the scope of this issue is vast. All individuals holding cash, government bonds, retirement funds, and fiat assets globally will face the same question: how much purchasing power will the money in hand retain in ten years? As soon as the market begins to doubt whether sovereign debt can expand without continuously diluting currency, capital 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, compliance, and accounting. However, the recently approved spot ETF has truly paved the way for this.

Now, asset management companies, family offices, pension funds, and even regular 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 capital.

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

If the narrative of "anti-fiat depreciation" truly evolves from a theme that has been speculated in every round into the next stage of the market's main line, the pool of funds BTC faces will be completely different.

If this round of BTC begins to accommodate the hedging demand against 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 narrative truly unfolds, what we are witnessing now may just be the starting point of a major bull market.

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