Bitcoin-Gold Correlation Hits Multi-Year High
Bitcoin (BTC), the world’s largest cryptocurrency, had a solid performance in the first quarter of 2023, rising almost 70%. Currently, the price of BTC is consolidated at around $27,800.
As we know, Bitcoin has outperformed every other asset class this year, including physical gold US stocks. In addition, Bitcoin Gold’s correlation rose to a multi-year high last week and is currently around 50%, according to blockchain analytics firm Kaiko.
Key Takeaways
- Bitcoin (BTC), the world’s largest cryptocurrency, had a solid performance in the first quarter.
- Kaiko shows the correlation between Bitcoin and the S&P 500, up 7.86% year-to-date.
- The spike in BTC volatility is partially due to liquidity as market depth remains at multi-month lows.
- Bitcoin has been known to exhibit patterns similar to the traditional stock market.
This BTC-Gold correlation exceeded Bitcoin’s correlation, with US stocks. BTC has long shown a close correlation with US stocks but outperformed all three indices nearly four times in the first quarter of 2023.
Kaiko shows the correlation between Bitcoin and the S&P 500, up 7.86% year-to-date. Gold, on the other hand, gained about 8.6% in the first quarter. Bitcoin has outperformed all of these assets, or up 70% year-to-date.
On the other hand, the share of Bitcoin owners is also increasing at the same time. Amid the current banking crisis, BTC has re-emerged as a haven.
Among US stocks, Bitcoin has consistently correlated with the technology-heavy Nasdaq index. Nasdaq 100 Index is recovering well, rising more than 20% since December 2022, technically entering a bull market.
Meanwhile, the volatility gap between Bitcoin and Nasdaq has reached its highest level since the collapse of the crypto exchange FTX in November 2022. The Kaiko report explains:
The spike in BTC volatility is partially due to liquidity, as market depth remains at multi-month lows. Binance, the largest and most liquid exchange are unlikely to go away as it faces regulatory pressure that could exacerbate market makers’ risk aversion.
As reported, Bitcoin will likely experience more volatility this month as liquidity is severely depleted.
Bitcoin has been known to exhibit patterns similar to the traditional stock market; however, cryptocurrency has been seen to follow the stock market’s direction less predictably. On the other hand, gold has been known as the safe-haven asset that investors move towards during times of uncertainty.
Despite these contrasting characteristics, a recent report suggests that the correlation between Bitcoin and gold has reached a multi-year high, surpassing that with US equities.
While it is true that Bitcoin has been touted as a digital alternative to gold, recent data suggests that the two assets still move together during market stress, indicating that Bitcoin has yet to achieve the same level of independence from traditional investments.
The high correlation between Bitcoin and gold, which is now outpacing that between Bitcoin and US equities, underscores the growing acceptance of the two assets as legitimate alt-asset classes.
The correlation also highlights Bitcoin’s potential to serve as a diversification tool in mainstream portfolios, particularly as the cryptocurrency gains more institutional acceptance. However, the correlation also challenges Bitcoin’s digital gold narrative. The data suggest that cryptocurrency has yet to achieve the independence from traditional assets that gold has enjoyed for centuries.