Bitcoin and Gold Correlation Hits Yearly High; Kaiko Reports
- Bitcoin and Gold share the scarcity element, enabling their value to skyrocket in the long term.
- Bitcoin is more tradeable by the general public than Gold without much risk of losing assets.
- Hedge fund managers, among other institutional investors, are divided in favouring blockchain technology through Bitcoin or purchasing more stacks of Gold.
Over recent years, Bitcoin has been regarded as digital gold due to its store of value concept. According to a report by Kaiko, a provider of crypto data to institutional investors, Bitcoin’s correlation with gold hits its highest level in over a year. However, the report noted that Gold had lost much of its touch as a safe haven, especially during the Covid pandemic.
Hereby begging the question of how much Gold prices are controlled by countries’ central banks and military superpowers.
“After benefiting heavily from the Russia-Ukraine conflict in the first quarter of the year, gold has lost all its gains and is currently down 10% YTD. Bitcoin has also declined double-digits this year, dragged down by global monetary policy tightening,” the report noted.
The Future of Bitcoin alongside the Gold market
Bitcoin and Gold share the scarcity element, enabling their value to skyrocket in the long term. However, Bitcoin is more tradeable by the general public than Gold without much risk of losing assets.
Hedge fund managers, among other institutional investors, are divided in favouring blockchain technology through Bitcoin or purchasing more stacks of Gold. Furthermore, Gold has proved its reliability as bees for thousands of years without any failure in core features.
For instance, Gold is resistant to most acids, apart from the mixture of nitric acid and hydrochloric acid. On the other hand, Bitcoin has recorded insane profits for investors around the crypto market in the past decade.
According to market data provided by TradingView, Bitcoin price has gained approximately 249 375 per cent from all-time figures.
To put the percentage into a different perspective, for an investor who purchased Bitcoin worth $1000 ten years ago, the investment is now worth approximately $2,493,000. On the other hand, an investor who purchased Gold bullion worth $1000 two decades ago, the investment is now worth roughly $10k.
Although Gold is tangible and all that, Bitcoin has proved to be a smarter investment to most institutional and retail investors.
“Despite core inflation remaining persistently high, gold has failed to act as a safe-haven asset i.e. an asset that is expected to retain or gain in value during periods of economic downturn,” the report added.
According to the report, Bitcoin has been mostly uncorrelated with gold, with its correlation oscillating between negative 0.2 and positive 0.2. However, as the U.S. Dollar continues strengthening, negatively impacting both crypto and gold, the correlation between the two assets has shifted.
Notably, the Gold market is expected to grow exponentially for as long as the Bitcoin global industry continues to expand. Furthermore, the Gold price, the US dollar purchasing power, and the cryptocurrency market are all connected through speculative trading.
Despite analysts’ call for increased correlation between Gold and Bitcoin, only one can emerge as the victor. Moreover, Gresham’s law states that bad money drives out good money.
According to Gresham’s 16th-century observation, if coins containing different metals have the same legal tender value, the coins made of the cheaper metal will be used for payment. In contrast, those made of the more expensive metal will be hoarded or exported and thus tend to disappear from circulation.