- The bitcoin-gold correlation has hit record levels, according to data from The Daily Shot, CoinMetrics, and skew.
- The correlation is being driven by economic and stock market turbulence, with institutional investors increasingly treating bitcoin as a haven hedge against inflation.
- Correspondence between gold and bitcoin prices will last for as long as the global economy continues to suffer Covid-19 fallout.
The bitcoin-gold correlation has hit its highest level on record, according to data from financial newsletter The Daily Shot. The level now stands at 0.6, with data from other sources showing that the correlation has hit new peaks in recent weeks.
The bitcoin-gold correlation is rising for several reasons. Investors are looking for havens amid a long-term economic downturn and short-term stock market fluctuations. Institutional investors are also increasingly flocking to bitcoin, bringing retail investors with them, while also making bitcoin relatively less volatile.
With a growing number of companies and funds holding bitcoin as a reserve asset, the correlation between gold and the cryptocurrency could persist.
Bitcoin-Gold Correlation: Short- and Long-Term Rises
The 60-day correlation between gold and bitcoin reached a new all-time in March and has been historically high ever since.
Data from other sources also suggest that the bitcoin-gold correlation hit new peaks in March. CoinMetrics’ Correlation Chart indicates a record-high 60-day correlation of 0.568 on March 16. Since then, the correlation had remained mainly at levels higher than those seen before March, although there was a plunge to 0.0825 on July 6.
Since the end of July, the correlation has been rising strongly and continuously. CoinMetrics’ current level is 0.476, while data from skew analytics shows that the one-month correlation hit an all-time high of 76.3% as recently as September 19.
Data from skew and CoinMetrics also show a gradual increase in the one-year correlation, indicating that the 180-day and 360-day levels hit all-time highs in recent days.
Economic Volatility Makes Bitcoin Less Volatile
It’s no secret that we’re in the middle of an extremely uncertain and turbulent period for the global economy. Nations have entered and exited lockdowns, while many seem set to impose harsher restrictions all over again. Simultaneously, the action many countries have taken to support economic activity has had the effect of weakening national currencies.
As a result, the price of gold has skyrocketed. Having tumbled to $1,477 on March 18, the gold price crossed $2,000 in early August.
Gold is viewed as a haven during times of economic uncertainty. It increasingly seems that bitcoin is assuming this function since its price chart over the past year looks strikingly similar to gold.
How exactly has bitcoin come to assume the same economic function as gold? Well, institutions are gradually investing in it in greater numbers, mainly as a hedge against inflation.
First, there was veteran fund manager Paul Tudor Jones revealing in May that around 2% of his total assets were in bitcoin. Then there was news in August that MicroStrategy had purchased 21,454 bitcoin as its “primary treasury reserve asset.”
Other institutions have been investing in funds such as the Grayscale Bitcoin Trust. They’ve also been buying gold, and they’ll likely be increasing their holdings of gold and bitcoin for as long the broader economy struggles.
That could end up being for a long time indeed. So strap yourselves in, and prepare for a high bitcoin-gold correlation for several months and years to come.
Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com and should not be considered investment or trading advice from CCN.com. The author holds no investment position in any of the above-mentioned securities.
Last modified: March 4, 2021 2:45 PM