Bitcoin’s Correlation to Gold Increases as Crypto Rally Continues

The relationship between bitcoin and gold has strengthened in recent weeks, supporting claims by bitcoin supporters that the crypto token is also a safe haven. Meanwhile, the correlation with US stocks has decreased significantly amid a banking crisis, especially in the last week.

Bitcoin decoupling from stocks

Bitcoin’s correlation to gold has been on an upward trajectory in recent weeks, branching off from equity prices as the ongoing banking crisis weighs on the stock market. Bitcoin’s relationship with stocks began to weaken around the SVB collapse, which triggered the current bank rout, while the cryptocurrency’s correlation with gold increased slightly earlier.

Flip in relationships support claims by bitcoin supporters who praise the cryptocurrency for offering the same safe-haven benefits as bullion. Their arguments have become unconvincing in recent years as bitcoin’s correlation with stocks has hit new records.

The stock market, which has struggled over the past year due to record inflation and aggressive rate hikes, has come under more pressure in the past week after US regulators shut down SVB, marking the second-biggest bank failure since 2008. Bank stocks were particularly hurt, falling to multi-year lows as investors bailed out.

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Bank Crisis and Core KPI Jump in Europe Fuel Fresh Bitcoin Rally

However, recent events have fueled another rally in Bitcoin, which broke the $26,000 threshold twice this week. And with that rally, the cryptocurrency’s tendency to move with US stocks has diminished, while its relationship with the yellow metal has strengthened.

The crypto rally got an extra boost after fresh consumer price index (CPI) data in Europe showed that core inflation in the Eurozone rose from 5.3% in January to 5.6% in February. The world’s number one cryptocurrency has climbed more than 6.5% in the past 24 hours.

Meanwhile, gold prices have also been on the rise. Spot gold rose 1.2% to $1,945 an ounce as investors turned to safe-haven assets amid the unexpected banking crisis. While the short-term outlook for gold looks positive, the bullion could come under pressure if the Federal Reserve decides to deliver an aggressive rate hike next week. However, most believe the central bank will opt for a further 25 basis point (bps) increase.

Do you think bitcoin’s correlation with gold could continue to strengthen if the Fed delivers a small rate hike? Let us know in the comments below.

About the author

Tim Fries is the co-founder of The Tokenist. He has a B. Sc. in mechanical engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate in the investment team at RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in sensing, protection and control solutions.