The 16% Gap: Why Bitcoin Fell Behind While Wall Street Celebrates

The financial markets in 2025 staged a dramatic split— the S&P 500 surged over 16%, reaching a new all-time high, while Bitcoin declined by 3% during the same period. This phenomenon is no coincidence but marks the first complete decoupling since 2014, signaling that the cryptocurrency king, once seen as a “barometer of high-risk assets,” is moving in a completely opposite direction from traditional equities.

Bitcoin’s “Stall” and Wall Street’s “Celebration”

In the second half of the year, tensions intensified. Bitcoin sharply retreated from its October all-time high, with November becoming the darkest month of the year, dropping 17.67%. During the same period, the Nasdaq Composite soared 21%, and the S&P 500 increased by 14.35%. Data shows that the number of days Bitcoin continuously hitting new highs hit a record low—only 3 trading days—indicating weak upward momentum.

In contrast, traditional stock markets remain fundamentally solid. 69% of U.S. listed companies beat earnings expectations— the highest in four years. Artificial intelligence concept stocks became market favorites, with Nvidia achieving a historic market cap of $4 trillion in July. Investors’ “numbness” to risk is astonishing: inflation pressures, tariff threats, geopolitical conflicts—these traditional market killers—failed to shake Wall Street’s confidence.

Bitcoin’s Dilemma in Policy Fog

The root of Bitcoin’s decline is complex. Regulatory uncertainty is at the forefront—despite the Trump administration’s friendly stance toward cryptocurrencies, key legal frameworks remain unimplemented. The “Clarity Act” passed by the U.S. House of Representatives is stuck in the Senate, with no set timetable for voting. Meanwhile, EU and Asian regulators are tightening controls over crypto exchanges and stablecoins.

Additionally, the launch of Bitcoin ETFs has brought unexpected side effects. When investors can easily hold Bitcoin through traditional channels, companies once favored for their crypto exposure have lost appeal. This “substitution effect” weakens Bitcoin’s own market momentum.

Liquidity Exhaustion and Community Divisions

A major liquidation event in October wiped out nearly $19 billion in leveraged positions, exposing market fragility. The Federal Reserve’s monetary policy adjustments further squeezed global liquidity. More worrying is internal discord within the Bitcoin community—heated debates over network upgrades have caused divisions, damaging market confidence. Many long-term holders are taking profits, while retail investors are in low spirits, with many worried about the next halving cycle.

“Desensitization” in Traditional Finance

Wall Street’s resilience stems from a unique market psychology. Investors have shown rare indifference to policy risks— the market even developed a “TACO trading logic” (believing “Trump will always back down”), which significantly absorbs potential negative shocks. This mental resilience is entirely absent in the crypto market.

Reversal in Asset Allocation and Risk Transfer

The declining correlation between Bitcoin and U.S. stocks has changed portfolio logic. Previously tightly linked asset classes are now diverging, opening new avenues for diversification but dealing a fatal blow to companies heavily reliant on Bitcoin.

Take companies with heavy crypto assets—risks are already apparent: if Ethereum is classified as a security, their entire business model could collapse. Even Bitcoin mining companies are not doing well—TeraWulf’s stock has surged 120% over the past year, but their debt levels have risen simultaneously, and further declines in Bitcoin price could trigger a debt crisis.

Diverging Institutional Perspectives

Judgments on Bitcoin’s outlook are now highly divided. Bloomberg Intelligence senior strategist Mike McGlone warns that Bitcoin, as an ultimate risk asset, is “melting away.” Meanwhile, capital inflows into Bitcoin ETFs have slowed significantly, and institutional support is waning. However, different voices still exist—FRNT Financial CEO believes Bitcoin’s pullback is merely a technical correction, pointing out that over a two-year cycle, Bitcoin still far outperforms the S&P 500.

Standard Chartered has directly lowered its year-end target from $200,000 to $100,000 and delayed its long-term target from 2028 to 2030.

Key Variables for the Future

Whether Bitcoin can reignite hope depends on several critical factors:

Regulatory Clarity: The progress of the “Clarity Act” in the Senate directly affects market confidence recovery.

Global Liquidity Injection: Historical data shows that the Bitcoin bull markets of 2017 and 2021 were not solely due to halving cycles but also due to abundant global liquidity. If the U.S. government shutdown issue is resolved, global liquidity may flow back.

Macroeconomic Changes: As a macro asset in institutional portfolios, Bitcoin’s performance now depends more on liquidity, policy, and dollar dynamics rather than traditional supply shocks.

U.S. Stock Market Resilience: If the U.S. stock market maintains its current earnings momentum and investor confidence, it could positively influence Bitcoin. Data shows that since 2020, Bitcoin’s correlation with the S&P 500’s returns has been increasing. When risk sentiment in stocks rises, the crypto market may recover accordingly.

As Wall Street analysts defend the “Trump will always compromise” logic, Bitcoin investors are peering back and forth between the $85,000 and $126,000 historical highs, trying to find the start of a new upward cycle. This waiting itself is the answer—market confidence is missing, which is far more telling than any technical indicator.