Bitcoin has been on a downtrend after hitting a new all-time high in mid-August. This decline stands in stark contrast to rising equities and gold prices.

Such a divergence, however, strengthens the case that crypto markets may soon stage a bullish catch-up rally.

Perfect Setup for a Surprise Rally?

In its latest analysis, crypto analytic platform Santiment detailed a notable bullish divergence forming between Bitcoin and traditional markets over the past two weeks. Since August 22, BTC has dropped by 5.9% as it briefly hit $107.5K before mildly recovering. During the same period, the SP 500 has edged higher by 0.4% and gold has surged 5.5%.

Since early 2022, crypto assets have shown a strong correlation with equities as institutional investors positioned them alongside stocks. This makes the current split unusual, as Bitcoin has lagged behind both equities and gold despite their upward moves.

According to Santiment, such sustained divergences often set the stage for Bitcoin and altcoins to catch up with global market trends. The wider the gap grows between BTC and traditional assets, the more compelling the case becomes for a potential crypto rebound, which means that traders should watch closely for a recovery.

Breakout Conditions for Bitcoin

In a different analysis, Matrixport said that Bitcoins current calm wont last long while highlighting the fragile state of the market as the asset hovers near the $106,000-$108,000 support range. This level has now been tested, which has confirmed the bearish shift in trend models.

However, Matrixport said such zones rarely give way on the first attempt, and added that while downside risks remain, the current consolidation could also serve as a foundation for the next big move. The backdrop is particularly telling, as evidenced by gold surging to record highs, European bond markets under stress, and US debt issuance accelerating rapidly.

At the same time, Bitcoins funding rates have cooled, and implied volatility has collapsed to historic lows, as macro catalysts stack up in September. Options markets appear to be underpricing potential volatility, creating the conditions for traders to be caught off guard. Historically, dips of this magnitude have often set up strong rebounds.