The Decoupling That Can't Decouple (And Other Lies We Tell Ourselves at 3AM)

Bitcoin is down 3% for the year. The S&P 500 is up 17.33%.

This is the first time in a decade—a full ten years—that stocks have rallied while crypto bled. And it should terrify everyone in this market, though it probably won't.

The moment I type that sentence, I'm already lying to myself. It hasn't started terrifying people because we're all too busy running the mental gymnastics required to pretend this divergence is normal. A healthy market correction. A repricing. A "crypto winter." All the words we use when the narrative we built collapses and we need to sound thoughtful while the walls crack.

What Actually Happened

Bitcoin touched $126,000 in October. That high feels like a fever dream now, like something that happened in 2021 instead of nine weeks ago. Thirty percent decline. Two months of liquidations, forced selling, retail exodus, margin calls cascading through the system like dominoes someone knocked over and now can't stop watching.

On Monday the 1st, Bitcoin tanked to $84,000. Straight down. Eight percent in a day. Strategy (MSTR)—the company that's become crypto's stock market proxy, the company holding 3% of all Bitcoin—cratered 37% in a single session. Halted multiple times. The trading system literally couldn't process the violence.

This happened while the S&P 500 was at 6,901, hitting a new all-time high. Record close. Confetti-level record. Meanwhile, the entire cryptocurrency sector was shedding billions in market cap, and equities didn't blink. Didn't even see it.

That's not decoupling. That's abandonment.

Why This Matters More Than You Think

For the past decade, Bitcoin moved with the S&P 500. Not perfectly—crypto had its own cycles—but the correlation was real. When risk-off sentiment hit, both tumbled. When risk-on sentiment returned, both ripped. It was the beauty of the crypto bull narrative: here was a new asset class that moved with growth stocks, had no credit risk like bonds, and offered asymmetric upside potential.

That story just died.

And nobody important is admitting it yet.

The usual suspects are trotting out the rescue narrative: it's just tax-loss selling. It's weak sentiment from retail. It's fears about the Bank of Japan raising rates (which would unwind carry trades and force Japanese investors to sell everything). It's just this calendar year being weird.

All of that is true. None of it matters.

What matters is the moment when an entire market class—one that was supposed to thrive under Trump, under a "pro-crypto" regime, under the loosest regulation in a generation—simply stops correlating with the bull case. When institutional capital that was supposed to buy the dip just... doesn't buy the dip. When the largest Bitcoin ETFs see their second-worst month of the year with $3.5 billion in outflows.

That's when you're looking at a structural problem, not a cyclical one.

The Equity Market Doesn't Care, But It Should

Here's the visceral part: the stock market's indifference is working against itself.

The S&P 500 rallied on softer-than-expected CPI data on December 18—2.7% year-over-year, down from 3%, with the caveat that the October data was zeroed out by the government shutdown. Markets loved it anyway. Micron crushed earnings. Broadcom missed guidance. Oracle delayed data centers. Semiconductors fell 10% in a week. The PHLX SOX index hit oversold conditions (RSI around 40). Nvidia down 2-4% depending on the session. ASML down 3%. TSMC down 2%.

And equities still hit all-time highs.

Do you understand what that means? It means the stock market is sustaining itself on retail flows ($7.8 billion the week of December 10, tracking at 1.9x the five-year average) and central bank rate cut expectations, not on fundamentals. The capital expenditure thesis for AI infrastructure is visibly cracking—Blue Owl backing out of Oracle's $10 billion data center deal is the canary in the coal mine—but equities are pricing that as a non-event.

That's confidence. Or delusion. Usually you can't tell the difference until the second act.

Bitcoin's Real Problem

Here's what Bitcoin bulls won't say: if crypto doesn't recover under the most favorable regulatory and political environment in its history, when does it recover?

Trump is president. Republicans hold the House and Senate. The "pro-crypto" regime everyone promised is here. And Bitcoin is still down 3% YTD while equities are up 17%.

The counter is that Bitcoin has outperformed on a two-year basis. True. The counter is that institutional adoption is happening. True. The counter is that exchange balances are drifting lower (showing conviction, supposedly). True.

But none of that moves the price right now. And price is what matters when retail is fleeing.

Strategy at $705 per share in mid-July. Strategy at $468 today. That's a 34% collapse in the stock that's supposed to represent leveraged Bitcoin exposure. The stock holds about 3% of all Bitcoin. Its decline is part signal, part cause—every forced liquidation in MSTR ripples through the market.

What happens when the tax-loss selling accelerates in December? What happens if the yen carry trade unwind actually happens and volatility spikes? Some analysts are calling for Bitcoin to test $55,000 to $75,000 in a true rout. A 40% decline from here. Not unthinkable in a panic.

And equities would probably hit new highs on the rate cut hope it would generate.

The Weird Part

The S&P 500 is being driven by the Magnificent Seven (Apple, Microsoft, Google, Amazon, Nvidia, Broadcom, Meta) which account for 36% of market cap but only 26% of earnings. These seven are supposed to contribute 46% of S&P 500 earnings growth in 2026. That's a heavy lift. That's betting the entire company on a handful of names that are already richly valued.

But here's what's weirder: the Dow is having a moment. Financials are rallying on a steeper yield curve. The Medline IPO popped 26% above its $29 pricing. Southwest Airlines just notched its 11th straight up day (best streak since 1972). Conagra and retail are looking mixed but alive.

There's an actual rotation happening out of hyper-growth into more boring value. But crypto isn't participating. Crypto is just dying.

That's unusual. That's the smell of something wrong with the actual demand thesis.

What You Should Be Watching

January 15th. Jobs data. The shutdown data blackout means we're flying blind on October employment. When those numbers drop—and especially if they show weakness—watch the Fed pivot. Watch the rate cut odds. Watch whether the rally that's been held together by CPI printing lower than expectations turns out to be priced on bad data.

Second: the next earnings call that mentions AI capex pullback. It's coming. Supply chains show weakness. Oracle already punted on timeline. When others follow, the concentrated equity gains reverse.

Third: December month-end. Tax-loss selling in equities could be brutal. Crypto could crater further. Or, and this is the fun scenario, a year-end rally into Santa Claus season happens and we end 2025 on a high note with everyone planning to short Bitcoin at $60,000 in January.

The divergence between Bitcoin and equities isn't a signal of health in either market. It's a signal of confusion—maybe panic—spreading through both. When two things that move together stop moving together, something is broken.

Usually it's the thing nobody's looking at yet.