Bitcoin Enters New Phase as Treasury Dominates Price Action

Bitcoin's price behavior has undergone significant changes over the years, evolving from an asset driven primarily by internal factors to one influenced by macroeconomic conditions. For its first decade, bitcoin's price was largely set by events within its own ecosystem, such as adoption milestones and halvings. However, in March 2020, the COVID-19 pandemic led to a break in this trend, with bitcoin's correlation with traditional assets like the S&P 500 and gold rising significantly.

The duration model, which held that bitcoin's price was driven by changes in the discount rate, first failed in March 2023. Instead of falling, bitcoin rallied alongside gold after several bank collapses. However, this trend did not persist, and the asset's behavior continued to alternate between risk-on and debasement-driven rallies.

Something new emerged during this transition: the internal drivers of bitcoin's price didn't disappear but changed form. The halving, which once significantly reduced supply, has become less relevant due to decreased issuance rates. ETFs have taken on a more prominent role, transmitting macro factors and creating leverage in the market.

Now, bitcoin is behaving like an asset influenced by the Treasury's actions. Its correlation with gold has increased significantly this year, while its correlation with the Nasdaq has fallen. This shift can be attributed to the Treasury's decision to double its buybacks of long-dated debt and subsequent interventions in its own market.