Bitcoin’s strong performance has been overshadowed by increasing correlation with U.S. stocks, raising concerns about short-term price risks.

Since Donald Trump’s election on November 5, Bitcoin (BTC) has surged by 47%, greatly outperforming the S&P 500, which gained only 4%. Trump’s positive stance on bitcoin and cryptocurrencies, paired with the Republican hold on both the Senate and the House, has sparked optimism for the digital asset, especially with potential favorable crypto legislation on the horizon.

However, in a recent interview with CoinDesk, Andre Dragosch, Head of Research at Bitwise Europe, explained other underlying factors contributing to the divergence between Bitcoin and traditional stocks.

“Bitcoin’s rise contrasts with the S&P 500’s challenges, especially after the Fed’s decision to reduce interest rate cuts for 2025,” Dragosch stated. “The Fed now plans only two rate cuts, lower than earlier expectations, which has weighed on traditional markets.”

Meanwhile, the U.S. Dollar Index (DXY), which measures the dollar against major global currencies, has risen by 5%, putting added pressure on risk assets, including Bitcoin. Despite this, Dragosch notes that Bitcoin has managed to remain strong due to various factors, including a sustained reduction in available bitcoin on exchanges. “Despite some profit-taking, Bitcoin’s exchange balances have continued to decline,” he explained.

Recently, however, Bitcoin has shown an increased correlation with the S&P 500, with their correlation reaching 0.88 over the past 20-day period, as per TradingView data. While Dragosch remains optimistic about Bitcoin’s on-chain support until at least mid-2025, he warns that the broader macroeconomic environment, combined with Bitcoin’s rising correlation to the S&P 500, could present short-term risks for the cryptocurrency’s price.