Bitcoin And Gold Correlation Surges Amid Banking Instability, Outpacing Stocks

Apr. 5, 2023
Bitcoin And Gold Correlation Surges Amid Banking Instability, Outpacing Stocks

Bitcoin, which had been performing like a declining tech stock for a year, is now exhibiting characteristics of a haven asset. In March, the correlation between BTC and gold reached its highest point in over a year, based on Kaiko’s analysis.

Bitcoin’s correlation to the stock market has been decreasing, while a new correlation has emerged, suggesting Bitcoin may be becoming a risk-off asset. As Per Kaiko’s analysis, BTC and gold have a 50% correlation, while its association with the stock market has reduced to around 20% since December.

According to Dessislava Aubert, an analyst at Kaiko, the fact that Bitcoin and gold had minimal correlation in 2022 was a notable change. She stated that BTC was not behaving like a haven asset then. In the 21st century, Bitcoin, depending on its supporters, can take the place of precious metals as a refuge asset.

This is due to its scarcity, divisibility, purity, and the advantages of being digital. Bitcoin fans believe it has the ability to replace traditional currencies worldwide. For a considerable period, the theory fell short of actual outcomes.

Last year, Bitcoin and other cryptocurrencies significantly correlated with the stock market, often surpassing 50%.Global central banks tightening interest rates caused a decline in risk-based assets.

Despite annual inflation reaching levels not seen in 40 years, BTC and gold often exhibited no or even negative correlation. This is contrary to their theoretical role as hedges against inflation.

Bitcoin And Gold’s Rise Amid Banking Concerns

Bitcoin surged to $28,000 while gold nearly hit $2000/ounce in mid-March due to banking concerns spreading in the US. This shift in the situation impacted the financial market significantly. Following the closure of Silicon Valley Bank and Signature Bank, the Federal Reserve committed to supporting all depositors.

It injected hundreds of billions of dollars into the banking system to prevent additional bank runs.  Banks have consistently experienced a decrease in withdrawals of deposits over the past nine weeks. Last week, large banks’ outflows were at a record high of $129 billion.

Bloomberg analysts predicted gold could break all-time resistance of $2000 if banking crises continue. UBS acquired Credit Suisse after a bank run in Europe. Deutsche Bank saw a demand spike in default insurance.

Bitcoin bulls see a new bull market ahead as macro conditions align. BitMEX co-founder Arthur Hayes recently wrote that the Federal Reserve’s Bank Term Funding Program could boost the economy and benefit stocks and crypto similarly to Covid relief.

Related Reading | Bitcoin 70% Surge Not Enough To Erase “Historic Undervaluation,” Says Crypto Analyst

Coinbase’s ex-CTO, Balaji Srinivasan, bet $2M on Bitcoin hitting $1M in under three months amid hyperinflation. Yet, Saifedean Ammous, author of “Bitcoin Standard,” who advocates for Bitcoin over gold as money, has reservations about the forecast.

Rida Fatima

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An ardent wordsmith with a rich five-year background in delving into the realms of finance and cryptocurrencies. Alongside curating captivating blogs, Unique's talents extend to crafting imaginative and engaging content.