• The correlation between Bitcoin and stocks has strengthened due to the acceptance of Bitcoin by retail and institutional investors.

  • After the crash in October, Bitcoin struggles to recover; it may end the year in decline.

  • The volatility of AI stocks impacts the trend of cryptocurrencies, raising concerns about a bubble.

  • Expectations of interest rate cuts by the Federal Reserve affect the market sentiment for cryptocurrencies.

    After experiencing a series of record highs and severe sell-offs, Bitcoin, the world's largest cryptocurrency, has seen a rollercoaster ride in 2025, facing the risk of its first annual decline since 2022.


    Global major stock indices have also experienced a tumultuous year, repeatedly hitting record highs only to retreat due to concerns about tariffs, interest rates, and a potential artificial intelligence (AI) bubble. Despite most major stock markets being up this year, the overall correlation between Bitcoin and stock prices has significantly increased.


    Analysts say that as traditional retail and institutional investors rush into cryptocurrencies, Bitcoin's volatility increasingly follows stock market sentiment. It is expected that next year, the connection between Bitcoin and the factors driving stocks and other risk assets may become even closer, such as changes in monetary policy and concerns over the overvaluation of AI-related stocks.


    "The response of cryptocurrencies to the overall stock market is a consistent theme in 2025," said Jasper De Maere, a strategist at crypto algorithm trading firm Wintermute.


    Earlier this year, with the election of pro-cryptocurrency Trump as President of the United States, cryptocurrencies soared. In April, after Trump announced new tariffs, cryptocurrencies plummeted along with the stock market, but quickly rebounded. Bitcoin hit a historic high above $126,000 in early October.


    However, just a few days later, on October 10, Trump announced new tariffs on Chinese imports and threatened to impose export controls on key software, leading to another market crash. This triggered over $19 billion in cryptocurrency leverage positions to be forcibly liquidated, setting a record for the largest liquidation in cryptocurrency history.


    Since then, Bitcoin has struggled to recover and recorded its largest monthly drop since mid-2021 in November, although recent data from options platform Derive.xyz suggests that bearish sentiment in the options market has slightly eased.


    As of last weekend, traders estimated that the probability of Bitcoin falling below $80,000 by the end of the year is 15%, down from 20% a few weeks ago.


    This is still a blow to Bitcoin bulls, including the world's largest Bitcoin holding company, Strategy, led by Michael Saylor, which predicted on October 30 that Bitcoin would reach $150,000 this year. Analysts at Standard Chartered predicted last year that Bitcoin would reach $200,000 by the end of 2025, partly due to inflows into Bitcoin exchange-traded funds (ETFs).


    Phong Le, CEO of Strategy, warned last month in a podcast that a "Bitcoin winter" might occur. According to media reports, Standard Chartered predicted in October that Bitcoin would fall below $100,000 but believes that this might be the last time it hits that low point.


    Saylor said last week in an interview with Reuters that even if Bitcoin's price drops by 95%, his company can survive.


    The correlation between Bitcoin and stocks has increased.


    The crashes of Bitcoin in April and October highlight its growing correlation with stocks, especially AI stocks, which share similar attributes and have been hit by concerns over valuation bubbles.


    Historically, Bitcoin and stocks have not moved in sync, as cryptocurrencies are seen as alternative investments. However, analysts point out that as traditional retail investors and some institutions adopt cryptocurrencies more widely, the correlation between the two seems to be strengthening.


    Correlation is measured on a scale from -1 to 1, with values above zero indicating a positive correlation. LSEG data shows that the average correlation between Bitcoin and the S&P 500 index in 2025 is 0.5, while the average correlation for 2024 is 0.29.


    The LSEG data also shows that the average correlation between Bitcoin and the Nasdaq 100 index in 2025 is 0.52, while in 2024 it is 0.23.


    Analysts say that cryptocurrencies have become significantly more sensitive to the movements of AI-related stocks, partly because AI stocks have driven a broader stock market, and partly because, like cryptocurrencies, AI stocks are currently seen as speculative investments to some extent, mainly relying on investor sentiment and risk appetite.


    "Since October 10, cryptocurrencies have become somewhat weak," said Cosmo Jiang, a general partner at cryptocurrency investment firm Pantera Capital. "In recent weeks, the risk asset market has really started to show cracks, due to doubts about the logic of the AI bull market."

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