Bitcoin’s correlation to gold tightened in March amid TradFi woes

Bitcoin behaved more like one of the world’s most historic currencies in March, as the largest cryptocurrency by market capitalization showed a strong correlation to gold.

The value of the two assets moved in similar directions throughout the month, increasing as a banking crisis reared its head in the United States, toppling several institutions that Silicon Valley Bank – which eventually spilled over into shutting down European giants like Credit Suisse.

The correlation between Bitcoin and gold is currently around 50%, according to blockchain analytics firm Kaiko. It represents the strongest connection between the two assets in more than a year, said Kaiko analyst Dessislava Aubert Decrypt.

“It’s a significant shift because during 2022, Bitcoin and gold were largely uncorrelated,” she said. “So, it didn’t move as a safe haven [asset] at all.”

Over the past month, Bitcoin has gathered 25% to around $28,000, reaching its third consecutive positive month despite regulatory headwinds. Meanwhile, gold has stepped up over 8% over the past month, approaching a record high of $1,988 per troy ounce on Monday.

Cryptocurrencies are generally not seen as a safe haven – they are generally seen as risky investments like stocks. And these risk assets have been hammered over the past year as the Federal Reserve has aggressively raised interest rates to curb inflation.

But Aubert said it is possible for Bitcoin’s status as a risk asset to change somewhat as investors’ perceptions of its strengths as a store of value change.

“For now, people are trying to put Bitcoin in a very traditional framework,” Aubert said. “It’s very difficult because it can be a lot of things.”

Meanwhile, the correlation between Bitcoin and the S&P 500 — a major index often used to measure movements in the U.S. stock market — fell significantly in March to 20%, adding to a trend that has been building for months, Aubert said.

“Bitcoin’s correlation with stocks has been going down since December, steadily, and it’s now very low,” she said, adding that 20% is essentially insignificant.

However, Aubert said that Bitcoin will remain affected by factors that also affect stocks, such as the Fed’s monetary policy. She also noted that Bitcoin is sensitive to changes in liquidity all in all.

As Bitcoin begins to behave more like a safe haven and less like a risky one, there are some fundamental similarities between Bitcoin and gold that are noteworthy, CoinShares head of research James Butterfill told Decrypt.

One element the two assets have in common is that a limited supply supports their value, he said. Similar to how there is a finite amount of gold available in the world, Bitcoin’s supply is limited to 21 million – with the last Bitcoin expected to be mined sometime in 2140, according to projections.

“Bitcoin is actually technically a more difficult asset than gold because it’s a limited supply, but [also] a very well-known limited supply,” Butterfill said. “Theoretically, you could go out into the universe and find a ton of gold, bring it back to Earth and flood the market.”

As for the cultural overlap between Bitcoin and gold, perhaps there is evidence to suggest they are converging on that front as well.

The California-based rapper Snoop Dogg entered the ring at WrestleMania 39 yesterday and was seen wearing a golden hardware wallet as an expensive chain.