There is a Gold and crypto correlation?

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Bitcoin and gold share fundamental similarities, including their value being supported by a finite supply. Bitcoin’s supply is capped at 21 million, with the last Bitcoin expected to be mined in 2140. This limited and well-known supply makes Bitcoin a technically harder asset than gold. Additionally, there is evidence of cultural overlap between Bitcoin and gold, as highlighted by rapper Snoop Dogg’s appearance at WrestleMania 39, where he was seen wearing a golden hardware wallet resembling an expensive chain.

In March, Bitcoin exhibited a strong correlation to gold, resembling one of the world’s historic currencies. Bank of America (BofA) noted the increasing correlation between Bitcoin and gold, indicating that investors are using Bitcoin as a safe haven amidst macro uncertainty and the absence of a clear market bottom. The correlation between Bitcoin and gold is seen as an inflation hedge and a store of value. Previously, the correlation remained close to zero but turned negative in March 2022 and later turned positive and continued to rise. Overall, market activity in the crypto space suggests limited directional conviction as investors wait for macro and investor capitulation. The top 100 digital assets have seen a 3% decline in market value in the last two weeks and a 60% decline year-to-date.

Bitcoin has experienced significant outflows from exchanges, indicating that investors are holding onto their holdings (HODL) instead of selling during periods of strength. These outflows have been larger than inflows, and the trend has continued over the past weeks, suggesting limited near-term selling pressure. The recent outflows reached their largest level since mid-June, contributing to bearish sentiment in the short-term. Bitcoin’s current price stands at $19,502, representing a 72% decrease from its all-time high of $69,000 in November 2021.

The value of Bitcoin and gold has moved in similar directions, particularly during a month that saw a banking crisis affecting institutions like Silicon Valley Bank and Credit Suisse. The correlation between Bitcoin and gold currently stands at approximately 50%, marking the strongest connection between the two assets in over a year. This is a significant shift since in 2022, Bitcoin and gold were mostly uncorrelated as a safe haven asset. Over the past month, Bitcoin has rallied 25%, reaching around $28,000, while gold has risen over 8%, nearing its all-time high of $1,988 per troy ounce.

Although cryptocurrencies like Bitcoin are generally considered risky investments, the correlation between Bitcoin and gold, a traditional safe-haven asset, has reached a three-month peak. Bitcoin is often seen as a high-beta version of gold and has outperformed gold this year. The weekly correlation coefficient between the two assets remains mildly positive at 0.59, with uncertainty surrounding their continued tandem movement expected for the remainder of the quarter.

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