The start of 2023 has provided Bitcoin (BTC) with bullish indicators and its rally to a year-to-date high of $21,647 has given crypto traders hope that the worst part of the bear market is over. The wave effect of BTC’s bullish price action is also being carried over to Ether (ETH) and Bitcoin mining stocks.

The Bitcoin Fear and Greed index’s drop to neutral may be driven by volume gains, Bitcoin on-chain data, and the decoupling of BTC price from stock markets. While not all analysts believe there is a market bottom, let’s dive into the data.

Trading volume and volatility returns

Bitcoin’s price spike was accompanied by a massive growth in trading volume. Over the past week, BTC volume more than doubled to $10.8 billion, up 114% over seven days.

Increased trading typically correlates with an increase in volatility. While current seven-day volatility levels of 2.4% are still below the seven-day average of 3.1% in 2022, Bitcoin has remained consistent throughout the 2023 rally.

Centralized exchanges (CEX) suffer from low trading volume, which means lower costs for the company, which has led to layoffs. The increase in volume for all exchanges is probably welcome news.

The increase in trading volume coincides with the return of profits

Bitcoin on-chain realized gains again test the value of the adjusted spent output earnings ratio (aSOPR) of 1.0, which some analysts believe is an important resistance level. The aSOPR metric historically shows a change in the overall market trajectory as profits are absorbed by trading volumes.

According to Glassnode,

“An aSOPR break above, and ideally a successful retest of 1.0, often indicates a meaningful regime shift as gains are realized and enough demand flows in to absorb them.”

To reverse a trend that started in May, the on-chain realized profit and loss ratio for BTC is above the 1.0 level, with 1.56 gains over losses on January 16.

When more traders are in the green on BTC purchases and realize profits without the price plummeting, it indicates market strength.

On-chain analytics also show positive signs that Bitcoin’s recovery may be underway. The more the market can absorb the selling pressure without price capitulation speaks to the reduced overall market anxiety and possible macro shift.

Related: Bitcoin on-chain and technical data are starting to suggest that the BTC price bottom has been reached

Bitcoins soften the correlation with stocks

Volatility, realized profits and trading volume help decouple Bitcoin from stocks. As reported by Cointelegraph, Bitcoin’s price action is typically closely correlated to US stocks.

Bitcoin’s 30-day correlation to the Nasdaq reached 0.29 on Jan. 17, the highest BTC divergence from stocks since December 2021.

Vetle Lunde, a senior analyst at Arcane Research, explains what decoupling means for the Bitcoin market.

“The softening of correlations is a positive development in the market.”

Bitcoin’s past correlation may have been caused by institutional investors bundling BTC with other high-risk assets and large growth companies like Tesla having exposure.

With institutional investors and growth companies holding less Bitcoin, the correlation to markets may decrease in the future.

Stock markets could continue to fluctuate due to the resilience of high inflation, but Bitcoin’s divergence from the stock market could help BTC become an investment hedge. According to some analysts, if Bitcoin can become a hedge for stocks, institutional investors could return to the market.