Why Bitcoin’s current price action diverges from the stock market—and what it means for investors
Bitcoin’s recent 20% decline versus a nearly 10% rally in US stocks since August 2025 signals trouble beneath the surface. But macro conditions remain supportive, and institutional demand is gaining strength. This article breaks down the key dynamics shaping Bitcoin today, helping you understand risks, signals, and opportunities ahead.
Why Are Bitcoin and Stocks Diverging Right Now?
Since August 2025, the US stock market has surged almost 10%, yet Bitcoin has dropped over 20%. This divergence is unusual because both usually move in sync when risk appetite shifts. The disconnect shows rising risks are pushing investors away from Bitcoin, which is considered a high-risk asset.
A similar pattern emerged at the 2021 Bitcoin bull market peak. Stocks rose while Bitcoin lost momentum, eventually leading to a brutal 75% bear market for Bitcoin. Investors fear a repeat scenario, but the current environment is more nuanced.
The Bitcoin Conditions Pyramid: Understanding What Moves the Market
Bitcoin’s price depends on multiple layers of factors, forming what we call the Bitcoin Conditions Pyramid:
- Base Layer: Macro conditions like global liquidity, interest rates, and inflation.
- Middle Layer: Market health variables like stock market breadth, credit spreads, and volatility.
- Top Layer: Crypto-specific indicators including on-chain fundamentals, Bitcoin dominance, and institutional demand.
While macro liquidity and easing Fed policy remain strong today, market health is weakening—explaining Bitcoin’s underperformance.
Market Health Is Deteriorating Despite Stock Rally
The US stock market’s rally is driven by fewer and fewer stocks. Market breadth measures the percentage of stocks in an uptrend. Currently, less than 40% of US stocks are rising, the lowest since April 2025 when Trump’s tariff announcement rattled markets. This signals shrinking risk appetite.
When breadth falls below about 66%, risk-taking contracts. Capital concentrates in safer assets like large caps, leaving risk assets such as Bitcoin behind.
Key Insight: The drop in stock market breadth starting August 2025 aligns closely with Bitcoin’s decline.
Credit Spreads and Volatility Confirm Rising Risk Aversion
Credit spreads—the difference in yields between risky corporate bonds and safe US Treasuries—have started widening, signaling heightened caution. Higher spreads typically lead to rising market volatility.
The Volatility Index (VIX) and Bitcoin prices move inversely. When volatility spikes, risk assets like Bitcoin tend to suffer large corrections, as seen in 2018, 2020, 2022, and April 2025. Since August 2025, volatility has been creeping up, matching Bitcoin’s poor performance. While volatility is far from panic levels, investors are clearly prioritizing capital preservation over risk-taking.
Institutional Demand Remains a Major Support
Despite short-term weakness, institutional investors have become a powerful Bitcoin demand force. From 2024 to early 2026:
- Institutions bought over 1.8 million Bitcoin.
- Miners produced only around 350,000 Bitcoin.
- Demand is more than seven times the new supply hitting the market.
This imbalance supports the current Bitcoin bull market and suggests the dip may be a correction, not the start of a new bear market.
What Could Boost Bitcoin Next?
Macro conditions—such as the Federal Reserve cutting interest rates further while inflation stays contained—remain supportive. An upcoming macro boost is expected soon, likely improving market health and reigniting risk appetite.
Answer Box: Why Is Bitcoin Declining While Stocks Are Rising?
Bitcoin and stocks can diverge when market health deteriorates even as broad liquidity remains high. Currently, less than 40% of stocks are in an uptrend, credit spreads are widening, and volatility is rising. This signals declining risk appetite, leading investors to favor safer assets over riskier ones like Bitcoin despite a strong macro backdrop.
Data Callout
Institutional Bitcoin Demand vs. New Supply
Institutions have bought over 1.8 million Bitcoin since 2024 while miners produced only 350,000, creating a demand-to-supply ratio over 7:1. This high institutional demand underpins the current bull market despite short-term volatility.
Risks: What Could Go Wrong?
- Increasing Volatility: If volatility spikes sharply, Bitcoin could face a deeper correction like in 2022.
- Credit Market Stress: Widening credit spreads indicate investor stress that could spread to cryptocurrencies.
- Macro Surprises: Unexpected inflation or aggressive Fed tightening would pressure risk assets.
- Market Breadth Prolonged Weakness: If fewer stocks participate in rallies, it signals sustained risk aversion, limiting Bitcoin gains.
Investors should watch these indicators closely and maintain risk management strategies.
Actionable Summary
- Bitcoin is currently diverging from US stocks, falling 20% while stocks rise 10% since August 2025.
- Market breadth is weak; less than 40% of stocks are in uptrends, signaling falling risk appetite.
- Credit spreads are widening and volatility creeping up, pressuring high-risk assets like Bitcoin.
- Institutional Bitcoin demand outpaces new mining supply by over 7 times, providing strong fundamental support.
- The current dip likely represents a correction within a broader uptrend, not the start of a bear market.
For investors, monitoring market breadth, credit spreads, and institutional buying is key to timing entries and exits.
Get the full playbook, real-time signals, and detailed model portfolios in today’s Wolfy Wealth PRO brief. Stay ahead of Bitcoin’s next big moves with our proven strategies.
FAQ
Q: What causes Bitcoin and stocks to diverge?
A: Divergence usually happens when market health indicators like breadth and credit spreads show rising risk avoidance, even if macro liquidity remains high.
Q: How does market breadth affect Bitcoin?
A: When fewer stocks participate in rallies (low breadth), risk appetite shrinks, reducing capital flow into risk assets like Bitcoin.
Q: Why is institutional demand important for Bitcoin?
A: Institutions accumulate large amounts of Bitcoin, driving demand that outpaces supply from mining, supporting prices during corrections.
Q: Can Bitcoin recover if volatility stays high?
A: Sustained high volatility usually suppresses Bitcoin gains. Recovery often requires volatility to stabilize or decline alongside improved market breadth.
Q: What macro factors support Bitcoin’s price now?
A: Fed rate cuts, contained inflation (e.g., falling oil prices), and strong global liquidity create a favorable backdrop even when market health falters.
Disclaimer: This article is for informational purposes only and does not constitute financial advice. Crypto markets are volatile and investing involves risks. Always do your own research before making decisions.
By Wolfy Wealth - Empowering crypto investors since 2016
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Disclosure: Authors may be crypto investors mentioned in this newsletter. Wolfy Wealth Crypto newsletter, does not represent an offer to trade securities or other financial instruments. Our analyses, information and investment strategies are for informational purposes only, in order to spread knowledge about the crypto market. Any investments in variable income may cause partial or total loss of the capital used. Therefore, the recipient of this newsletter should always develop their own analyses and investment strategies. In addition, any investment decisions should be based on the investor's risk profile
