The correlation between Bitcoin (BTC) and precious metals (gold specifically) is increasing each day. Now, investors are starting to think there is a further positive development in BTC’s future. BTC rallied to a 2020 high of above $11,000 this week with gold also breaking a high of $2,000. The increased rate of correlation between these two assets is a definite trend shift from previous years but what does it mean for the future of crypto?
Source: Coin Metrics
For years, BTC has been referred to as “digital” gold, seeing as it was a popular store of value for “alternative” investors. However, Bitcoins’ volatility did not correlate with gold until this year where we are seeing more stabilization and the increased correlation between BTC and gold. This is not the first time we’ve seen this correlation though. Last time there was some form of correlation between BTC and gold was the latter part of 2018. During November of that year, BTC dropped 50% while gold also had a significant drop a few months earlier. Around the same time, they both started making strong recoveries. This time the correlation is fueled by global governments printing money.
Surely the Federal Reserve didn’t expect Bitcoin and Gold to have such large rallies as a result of their excessive money printing in 2020 but that’s what happened. Before February of this year, there really was no correlation between BTC and gold. It wasn’t until the massive market crash on March 12 that we started to see a change in behavior. That day, Bitcoin plunged all the way to $3,750, with gold also taking a hit down to $1.5k.
Since that Black Thursday event, both assets have climbed up to $12,000 (BTC) and $2,100 for gold. There are two possible explanations for this:
Investors exited all markets on March 12 to store their assets in cash due to fears surrounding coronavirus. The increase since then was simply investors entering the market again with new confidence.
The US dollar is declining in value and inflating. Hence, investors are exiting fiat markets for safe-haven assets like Bitcoin and gold.
July saw the US dollar face it’s worth month in over a decade and is currently at high-risk of going below an important 12-year trendline. Couple this with a large unemployment rate and a growing number of COVID-19 cases in the USA, it looks like the country is heading straight for a recession which analysts say will further benefit gold, silver, and BTC.
Almost immediately after the Federal Reserve decided to print stimulus money and lower rates to almost 0%, other central banks around the world began to follow. For example, Thailand’s central bank chose to leave its low-interest rate as is and instead pray for a slow economic recovery. China also said it would make its policy a bit more flexible, something very uncharacteristic of the country.
Therefore, we’re seeing a much more “relaxed” financial infrastructure around teh world and increased liquidity in markets. This in addition to rising inflation is leading to high demand for safe-haven assets like BTC crypto and gold. With this current bullish momentum and no end in sight for fiat recovery, the near future certainly looks bullish.
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