Bitcoin’s Correlation with Gold on the Rise
NAIROBI (CoinChapter.com) – Bitcoin’s correlation with gold, a traditional safe-haven asset, has been steadily climbing, according to data from Kaiko. The 60-day correlation between the world’s largest cryptocurrency and the precious metal has spiked to levels not seen since the highs of 2022, raising questions about Bitcoin’s long-touted independence from traditional markets.
Is BTC Losing Its “Digital Gold” Status?
Over the years, Bitcoin’s correlation with gold has fluctuated. In late 2023, the correlation turned negative, indicating opposite movements. However, recent months have shown a positive trend, with the correlation now less than 0.2, still far from the 0.5 level seen in 2022.
Bitcoin and gold correlation. Source: Kaiko
Kaiko’s chart illustrates this trend clearly. The increase in correlation could impact investment strategies, as highly correlated assets provide poor diversification. Investors may want to reconsider their portfolios.
Gold has experienced significant price movements this year, peaking near $2,450 in May before falling by over 4% to around $2,328.20. This volatility may influence Bitcoin’s relationship with gold. If gold prices continue to fluctuate, Bitcoin’s market behavior might change, affecting investment strategies.
XAU/USD 1-day price chart. Source: Investing.com Bitcoin’s Decentralization Threatened
One of the core selling points of cryptocurrencies like Bitcoin has been their decentralized nature. They operate outside the bounds of government control or influence. However, Bitcoin’s increasing correlation with gold, an asset deeply entrenched in traditional financial systems, threatens to undermine this very principle.
As the correlation strengthens, BTC’s price movements become more intertwined with those of gold. Notably, this development could erode crypto’s appeal as a hedge against traditional markets and cast doubt on its role as a revolutionary financial instrument.
Moreover, the growing correlation between Bitcoin and gold also presents a diversification challenge for crypto investors. Traditionally, assets with low or negative correlations have been favored for portfolio diversification. They tend to move independently, mitigating overall risk. However, as Bitcoin’s correlation with gold increases, its potential to provide diversification benefits within a broader investment portfolio may be compromised.
BTC/USD price chart. Source: CoinMarkerCap
Additionally, as of May 31, 2024, the price of Bitcoin stands at $67,410.32 per BTC/USD, with a market capitalization of $1,328.39 billion. The 24-hour trading volume is $27.73 billion. Above all, these figures highlight Bitcoin’s substantial market presence and the significant trading activity surrounding it. Certainly, they reflect its ongoing popularity and importance in the global financial landscape.
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