Bitcoin’s ‘digital gold’ narrative is back? Strengthened correlation says yes

Key Takeaways:

  • Gold and Bitcoin printed a heightened correlation on the charts.
  • Both assets heavily depend on the US dollar and Federal Reserve's actions.
  • BTC and stocks still traded in tandem, not low enough to decouple.
Bitcoin gold stocks S&P500

YEREVAN (CoinChapter.com) – For the past year, Bitcoin (BTC) has exhibited a heightened correlation with risk-on assets. However, the tandem has gotten weaker, reviving the crypto asset’s ‘digital gold’ narrative. According to research group Kaiko, BTC’s connection to gold is the strongest in over a year.

GOLD and Bitcoin friends again?

According to Kaiko, the correlation between BTC and GOLD ranged from -0.2 to 0.2 within the previous year. And, while the correlation hit its highest at 0.3, its strength is still not convincing, leaving open the question of whether BTC and gold will continue to travel in sync.

The charts testify that the suggested correlation could have formed in late April while the global economy deteriorated, affected by the tense geopolitical situation and the Fed slamming the breaks on the money printer.

Gold and Bitcoin in tandem. Source: TradingView.com
Gold and Bitcoin in tandem. Source: TradingView.com

Depends on the Fed and the US dollar

Bitcoin was trading just below $20,000, unable to break above the support line with any confidence. Meanwhile, GOLD traded at $1,710 an ounce, dropping 17% since its March peak of over $2,000.

Charlie Morris, chief investment officer at ByteTree Asset Management, commented on the matter, citing the importance of the Fed’s upcoming actions and, subsequently, the greenback’s value.

The dollar hasn’t been this pricey since 1985, and at some point the Fed will cool off. When that happens, both bitcoin and gold will respond well. Just as a strong dollar caused them pain, a weak dollar will bring relief.

commented the expert.

What about Bitcoin and stocks?

Admittedly, during the Covid-19 pandemic, the flagship cryptocurrency was crowned ‘digital gold’ and perceived as an alternative safe-haven asset amid the crisis. However, the abundance of mainstream fund inflow affected the crypto market, making Bitcoin’s connection to the US stock market increasingly strong.

The said tandem was persistent through the previous quarters. But the September performance review underscored the narrative presented above. ‘Digital gold’ is not back just yet. However, according to Arthur Hayes, the founder of BitMex crypto exchange, Bitcoin’s correlation with the S&P500 stock market index fell to a 10-day low on Sep 30.

The correlation between the stocks and Bitocin got weaker. Source: Arthur Hayes on Twitter.com
The correlation between the stocks and Bitcoin got weaker. Source: Arthur Hayes on Twitter.com

The expert also noted that the 30-day correlation was still high and trending “in the wrong direction.” BTC’s correlation with gold might be higher than usual. However, it does not mean the flagship crypto will decouple from stocks any time soon.

Thus, traders should take the global macroeconomic factors into account and make a balanced decision while looking for a hedge to protect their funds against the storm. For information on the crytpo market and the storms affecting it, click here, and learn more.

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