Bitcoin Is In Its Own Lane: A Deep Dive Into Its Surging Relative Strength

I wrote a piece on the relative strength of Bitcoin (BTC-USD) back in early April, as I believed Bitcoin was offering more alpha at the time compared to U.S. equities.

I penned an article back in early April highlighting the relative strength of Bitcoin (BTC-USD) compared to U.S. equities, a perspective I felt was being largely overlooked at the time as BTC’s price action was unfolding rapidly in the mid $40k range following the apex in early 2022.

This thesis wasn’t something I developed in a vacuum, as I’d been following the narrative of "maximal Bitcoin" closely over the past year or two, a theory that essentially claims the cryptocurrency is capable of generating superior returns over the long term compared to traditional assets like U.S. equities.

At the time, I felt this thesis was playing out in the markets' actions, and I preferred BTC’s setup compared to the S&P 500 (SPX) or the Nasdaq 100 (NDX). BTC was quickly approaching the $50k level after forming a base in the mid $30ks following the 2022 downturn, while the major U.S. equity indices were still struggling to break out of their respective trading ranges.

The S&P 500 and the Nasdaq 100

Source: StockCharts

The optimists on U.S. equities were still focused on the potential for a breakout from the bear market highs, but I felt this view was becoming increasingly crowded. At the same time, I observed that BTC was quickly approaching the key $50k resistance level, a level which if cleared could lead to a substantial price increase for the cryptocurrency.

Now, a few months later, it appears that BTC has indeed continued its relative strength in outperforming U.S. equities, a trend which I believe could continue as we head into the second half of the year.

BTC has surged past the $50k level and is now trading above $400k, while the S&P 500 and the Nasdaq 100 have pulled back sharply after failing to follow through on their respective breakout attempts.

The S&P 500 and the Nasdaq 100

Source: StockCharts

As we can see from the chart above, the S&P 500 topped out in August 2023 at 5248, just a few points shy of the bear market highs of 5244 which were set in January 2022.

After rolling over from the highs, the major U.S. equity index quickly declined to lows of 4114 in March 2023 before stabilizing and rallying once again to retest the highs in May 2023.

After failing to follow through to new highs, the S&P 500 pulled back sharply, dropping to lows of 3509 in March 2023.

The Nasdaq 100 also pulled back sharply after failing to follow through on a breakout attempt above the 2022 highs.

After topping out at 18000 in August 2023, the tech-heavy index pulled back quickly to lows of 10800 in March 2023 before stabilizing and rallying once again to retest the highs in May 2023.

The final attempt to breakout was met with selling pressure, and the index pulled back sharply, dropping to lows of 9668 in March 2023.

The S&P 500 and the Nasdaq 100

Source: StockCharts

The optimists on U.S. equities may argue that the pullback in the major U.S. equity indices was to be expected after the rapid rally from the March 2023 lows.

However, I believe that the pessimistic outlook on U.S. equities is becoming increasingly crowded at this point in time, especially as we factor in the potential for the Fed to keep interest rates elevated in order to tame inflation.

On the other hand, I still prefer the setup for BTC, which I think stands to benefit more from a pessimistic macroeconomic outlook.

The cryptocurrency has continued to rise despite the bleak economic reports, and I observed that BTC was showing relative strength even during the 2022 bear market.

At the beginning of the year, the narrative was that BTC would be affected negatively by the FTX collapse, but I felt that the cryptocurrency could still perform well if it held the $25k level, a scenario which ultimately played out as BTC went on to rally past the $30k level.

After dropping to lows of $25111 in November 2022 following the FTX bankruptcy, BTC stabilized and began to rally, eventually testing the 2022 highs of $52483 in March 2023.

Following the rejection