Bitcoin Acts as a “Central Bank” Hedge Amid Macro Uncertainty: Gold Correlation Increases
Bitcoin’s correlation with gold has increased over the past couple of weeks, suggesting that the flagship cryptocurrency is once again on the verge of becoming a safe haven and a hedge against inflation. On the other hand, traditional financial markets (TradFi) continue to witness wild price swings, making the class an unfavorable choice for investors.
Bitcoin correlation with gold hits 0.50
After a months-long stretch where Bitcoin initially traded as a risk asset, the leading cryptocurrency has seen its correlation with gold increase. As of now, BTC’s correlation with gold stands at 0.50, up from around zero in mid-August, Bloomberg reported, citing data from Bank of America Corp.
It is worth noting that BTC correlations with the S&P 500 and Nasdaq 100, which stand at 0.69 and 0.72 respectively, remain higher. However, these correlations have declined and are below record levels from a few months ago.
BofA digital strategists Alkesh Shah and Andrew Moss said the increasing BTC-gold correlation and the leading cryptocurrency’s decreasing correlation with major world indices are a sign that things could be changing. The duo wrote:
“A declining positive correlation with SPX/QQQ and a rapidly rising correlation with XAU indicates that investors may view Bitcoin as a relative safe haven as macro uncertainty continues and a market bottom remains to be seen.”
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Bitcoin and risk asset correlation hit ATH in early 2022
Bitcoin and risk assets have seen an increasing correlation since the start of the year. According to a report from Bank of America, the correlation between Bitcoin and the S&P 500 reached a record high earlier this year in January. Bitcoin’s correlation with the Nasdaq 100 was also near all-time highs.
This came amid global economic headwinds and financial turmoil that began with COVID-19 and was exacerbated by macro events such as the Ukraine war and China’s pandemic shutdown. Combined with increasing inflation and interest rate increases, this has led to a decline in the value of stocks and crypto.
It is not very difficult to notice the relationship between Bitcoin and the stock market at the entrance of 2022. In the last couple of months, a stock market crash has also dragged the crypto market down with it.
This contradicts one of the main Bitcoin investment narratives put forward by crypto-believers, which is that the flagship cryptocurrency can serve as “digital gold”, a safe haven free from the influence of decisions by central banks and governments, mainly due to its fixed supply. .
As reported, in mid-June, gold managed to avoid a steep selloff despite the carnage in the crypto market. While both gold and Bitcoin have suffered losses, gold has outperformed Bitcoin so far this year. While the leading cryptocurrency is down more than 58% YTD, gold is down less than 10%.
As of now, Bitcoin is trading at around $19,380, up more than 1% in the last day. The leading cryptocurrency is largely flat over the past month, but down about 72% compared to its all-time high of $69,000 recorded on November 10, 2021.
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About the author
Ruholamin Haqshanas is an accomplished crypto and financial journalist with over two years of experience writing in the field. He has a solid grasp of various segments of the FinTech space, including the decentralized iteration of financial systems (DeFi), and the emerging market for non-fungible tokens (NFT). He is an active user of digital assets for money transfers.
