Bitcoin-Gold Correlation at Year High

At the same time, Bitcoin’s correlation with stocks is at its lowest since November 2021 as investors favor its store of value property amid mounting regulatory uncertainty.

Bitcoin and gold bars, art generated by Midjourney.

According to blockchain analytics firm Kaiko, the correlation — which measures the degree to which two financial assets or indices move together — between Bitcoin and gold currently stands above 50%, exceeding its correlation with the US stock market.

Meanwhile, Bitcoin’s correlation with the S&P 500, which is a stock market index tracking the performance of 500 largest companies listed on the US exchanges, fell significantly to 20% in March, adding on to a trend visible since December. The weakening connection with stocks suggests that Bitcoin is becoming a safe-haven asset rather than a risky investment.

“It's a significant shift because over the course of 2022 Bitcoin and gold were mostly uncorrelated,” Kaiko analyst Dessislava Aubert told Decrypt. “So, it was not moving as a safe haven [asset] at all.”

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The laser-eyed crowd of crypto proponents has long hailed Bitcoin as “digital gold,” spreading the belief that it can provide the store of value similar to gold due to its divisibility, finite supply, and low correlation with other assets. The last argument is obviously debatable, as Bitcoin and other cryptocurrencies were heavily correlated with the stock market throughout 2022 as rising interest rates bolstered investors’ appetite for risky investments.

However, Bitcoin’s scarcity is real and unquestionable, as its 21 million hard cap set by creator Satoshi Nakamoto is hardwired in its code and enforced by nodes of the network. Its limited supply keeps the cryptocurrency scarce, ensuring that it holds its value or even appreciates over time.

Both gold and Bitcoin posted significant gains in mid-March after a string of bank failures in the US prompted investors to seek refuge in so-called safe assets — those that are expected to retain or increase their value during periods of economic downturn. As regulators shut down Silicon Valley Bank and Signature Bank and injected hundreds of billions of dollars in liquidity back into the banking system to avert a looming banking crisis, Bitcoin rallied to $28,000 and gold flirted with the $2,000-an-ounce level.

Nigel Green, CEO of financial consultancy firm deVere Group, believes that the long-term inflation of fiat currencies fuels investors’ interest in alternative stores of value to the dollar.

“This is because astronomic levels of debt, and the enormous, ongoing amount of money printing to monetise these debts, have caused the considerable drop in the long-term value of the global reserve currency,” deVere CEO said. “Investors are therefore looking for alternative currencies, such as cryptocurrencies. Moving forward, these will increasingly compete with traditional, fiat ones, and this will help trigger the decreasing dominance of currently leading international currencies.”

Meanwhile, a former Coinbase CTO Balaji Srinivasan even went on to make a jaw-dropping $2 million bet that Bitcoin will hit $1 million by June 17 due to hyperinflation and banking system collapse in the United States.

“This is the moment that the world redenominates on Bitcoin as digital gold, returning to a model much like before the 20th century. What's going to happen is that individuals, then firms, then large funds will buy Bitcoin. Then sovereigns like El Salvador and tiny crypto-friendly countries,” Srinivasan said, predicting that the global economy will soon enter “hyperbitcoinization.”