The Increasing Correlation between Gold and Bitcoin Since 2023, What Does It Signify?
In the dynamic landscape of crypto and traditional assets, the year 2023 witnessed a noticeable shift in the correlation between Bitcoin and gold.
A recent report from asset manager Fidelity has highlighted the surprising correlation between these two distinct commodities, deviating from their historically inverse relationship with interest rates.
This unexpected development has sparked speculation within the investment community, prompting exploration into potential factors behind this newfound correlation.
Bitcoin and Gold Correlation
Traditionally, Bitcoin exhibited a non-correlative nature with gold over the long term. However, Fidelity's analysis revealed a striking increase in correlation, especially during periods when global interest rates experienced a rise.
Contrary to the expected impact of high interest rates on risky assets, BTC not only maintained its stability but also surged in value.
"But last year, we saw this relationship completely break when real interest rates continued to rise (with inflation receding and treasury yields spiking higher at one of the fastest paces in history), with Bitcoin not only holding steady but then strengthening! Could this be due to special events, like anticipation of spot ETP? Perhaps. But in our view, it's not the case, as gold has also shown similar behavior lately," explained Fidelity analysts, as reported by Cointelegraph.
Throughout 2023, gold exhibited significant price fluctuations while maintaining strong performance against various currencies. This precious metal experienced a growth of 14.6 percent in US dollars, with notable variations in performance among different currency pairs.
Geopolitical risks and central bank demand were identified as the main drivers of gold's positive performance. In contrast, Bitcoin witnessed an extraordinary increase of 156 percent during the same period, emphasizing its growing significance in the global financial landscape.
"Historically, Bitcoin has been relatively uncorrelated with gold in the long term, but recently, it has shown an increase in correlation as both strengthen," added the company's analysts.
Fidelity's analysis delves into potential explanations for the increased correlation between Bitcoin and gold. Speculations revolve around the growing fiscal deficit in the US and anticipations of interest rate changes.
The report suggests that both Bitcoin and gold might be expressing skepticism about bond market projections or providing hints about underlying economic factors.
One possible explanation is the anticipation of further monetary actions by The Fed in the future or expectations of interest rate cuts. Fidelity's research emphasizes that Bitcoin's correlation is not only with consumer price inflation but also with money supply inflation and various liquidity metrics.
Another striking aspect revealed by Fidelity's analysis is the tightening supply environment for Bitcoin.
The report indicates that the number of long-term holders has reached a record high of 70 percent, indicating a strong holding strategy even amid significant price increases.
Despite Bitcoin's price surging over 160 percent, long-term hodlers and coin liquidations show no significant movements, indicating a strong commitment among investors to maintain their positions rather than capitalize on short-term gains.
