What is the correlation between bitcoin and gold?

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It’s been three weeks since the big drop in Bitcoin prices on March 12. When the price of the cryptocurrency fell 49% in less than 24 hours, the crypto community was amazed by the sharpness of the decline. For this reason, we continue to look for an answer to what happened and what will happen in the crypto market a few days later. Including an analysis of the correlation between Bitcoin and gold.

Bitcoin, a store of value?

We never tire of saying it here at CryptoTrend, the crypto world is a place of constant debate. And luckily so, because thanks to that, blockchain technology has made great strides over the past decade. Because innovation and creativity arise from the diversity of ideas.

And one of the most successful ideas within the crypto community is that of Bitcoin as an active store of value. In other words, as a financial asset that is not directly related to traditional markets.

This means that if the price of these falls, this does not apply to the value reserve of the asset. It is therefore a natural haven for capitals in times of political, economic and social uncertainty.

Gold is currently the most famous refuge in the world. Precious metal with a long history as a valuable representation. This explains the behavior of this asset during the coronavirus crisis.

Because although the effects of the pandemic initially led to a drop in the gold price, the precious metal quickly recovered. Currently there is an important difference between the price of gold in coins and bars and the spot price of gold traded on the financial market.

The price of the first is higher as investors plunge into physical gold at a time when the paralysis of the economy, and therefore the refineries and mines, has affected supply.

The ounce of gold in gold and bars is worth a lot more than spot gold. Source: BullionStar and Bloomberg
An ounce of gold in an ingot is worth a lot more than spot gold. Source: BullionStar and Bloomberg

The correlation between Bitcoin and gold

Although the gold market is more resilient to the corona virus, we cannot say so for Bitcoin.

Well, despite the fact that it has long been believed that there is an important correlation between Bitcoin and gold, this recent crisis has shown a stronger correlation between BTC and traditional financial market shares.

The correlation between Bitcoin and gold appears to be quite weak when analyzing the price of Bitcoin and other assets. Source: Coindesk
The correlation between Bitcoin and gold seems to be pretty weak. Source: CoinDesk

As can be seen in the previous graph, there therefore appears to be a greater correlation between Bitcoin price and the Nasdaq and S&P 500 indices of the stock market than between cryptocurrency and gold. Which would of course disqualify BTC as a reserve of value.

This does not mean that Bitcoin as an asset that is not related to financial assets is completely out of order. There is one last hope for BTC to demonstrate its value in the next cryptocurrency blockchain halving, which is expected in May this year.

The Halving's have historically driven the price of Bitcoin. Source: Coindesk
The Halving’s have historically driven the price of Bitcoin. Source: CoinDesk

And if the pattern of the previous Bitcoin halving is followed, the price of the cryptocurrency should go up significantly. Regardless of what happens on the global stock exchanges.

What could save the correlation between Bitcoin and gold, which, if we look at it in the long term, was stronger than that between BTC and the financial market? Therefore, there is still the possibility for Bitcoin to be recognized as a safe haven.

The correlation between Bitcoin and gold has historically been strong. Source: Coin Metrics
The correlation between Bitcoin and gold has historically been strong. Source: coin metrics

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