Investors are fleeing gold and bitcoin, pushing the correlation to a new 12-month high

Bitcoinits correlation with gold just hit its highest level in 12 months this week as investors have been lured by a strong dollar amid rising interest rates.

While Bitcoin has long been hailed as a “digital gold” and a hedge against inflation, like the yellow metal, investors seem to disagree.

Over the past few months, while inflation has risen, both Bitcoin and gold have seen large declines in value, leading to a year-high correlation of +0.4, according to Kaiko Research.

A correlation of +1.0 means that two assets are moving in perfect sync in the same direction. Bitcoin and gold’s correlation has mostly been between -0.2 and +0.2 over the past year, meaning they have been largely uncorrelated.

For context, Bitcoin and the S&P 500 have a correlation of around +0.61, as crypto often trades with other risky assets, according to data from CoinMetrics as of September 30.

Still, over the past 90 days, Bitcoin has risen 3% while the S&P 500 has fallen 1%.

“It is too early to declare an official ‘decoupling’ between Bitcoin and stocks, although Bitcoin’s increasing correlation with gold suggests a slight change in market structure,” Kaiko Research told Decrypt.

Bumpy year for Bitcoin, gold

After rallying as a safe haven on the heels of the Russia-Ukraine conflict in February this year, gold has now lost all gains and is down 10% year-to-date.

The precious metal is highly sensitive to rising US interest rates, as it is priced into and backed by the dollar. Higher interest rates increase the opportunity cost of holding non-yielding metal, as the money can be used to buy government bonds that now pay a higher yield, for example.

“Gold and the other semi-investment metals such as silver and platinum are likely to continue to remain under pressure until the market reaches the peak hawk,” Ole Hansen, head of commodity strategy at Saxo Bank, said in a note.

Bitcoin has also suffered from the effects of rising interest rates imposed by central banks around the world, which has made institutional investors less keen to throw money at volatile cryptocurrencies.

The world’s largest cryptocurrency is at just under $20,000, far from the all-time high of $68,000.

Additionally, a worsening economy and rising consumer prices have also left many retail investors with less money to park in volatile investments like Bitcoin and other cryptocurrencies.

However, there is hope that central banks may soon reverse course and return to quantitative easing.

The Bank of Japan and the Bank of England both injected capital into the economy in September. If the Federal Reserve joined in, it would likely push the dollar and probably make other assets more attractive again.