Bitcoin’s correlation with gold rises
Nairobi (CoinChapter.com) - Bitcoin's correlation with traditional safe-haven asset gold is steadily rising, according to Kaiko data. The 60-day correlation between the world's largest cryptocurrency and the precious metal has reached levels not seen since its 2022 peak, raising questions about Bitcoin's independence from traditional markets.
Has Bitcoin lost its status as “digital gold”?
Over the years, Bitcoin's correlation with gold has fluctuated. By the end of 2023, the correlation turned negative, indicating movement in the opposite direction. However, in recent months, a positive trend has emerged, and the correlation is currently below 0.2, still well below the 0.5 level in 2022.
Kaiko’s chart clearly shows this trend. The increase in correlation could have implications for investment strategies, as highly correlated assets provide poor diversification. Investors may need to rethink their portfolios.
Gold prices have fluctuated significantly this year, peaking at nearly $2,450 in May before falling about 4% to about $2,328.20. This volatility could affect Bitcoin's relationship with gold. If gold prices continue to fluctuate, Bitcoin's market behavior could change, affecting investment strategies.
Bitcoin’s decentralization is under threat
A core selling point of cryptocurrencies like Bitcoin is their decentralized nature. They operate outside of government control or influence. However, Bitcoin's growing correlation with gold, an asset deeply embedded in the traditional financial system, could undermine this principle.
As the correlation grows, Bitcoin’s price movements become increasingly tied to gold’s. Notably, this situation could undermine the cryptocurrency’s appeal as a hedge against traditional markets and cast doubt on its role as a revolutionary financial instrument.
Additionally, the growing correlation between Bitcoin and gold also presents a diversification challenge for cryptocurrency investors. Traditionally, assets with low or negative correlations are 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 portfolio may be compromised.
Furthermore, as of May 31, 2024, the price of Bitcoin is $67,410.32 per BTC/USD, with a market cap of $132.839 billion. The 24-hour trading volume is $27.73 billion. Taken together, these figures highlight the importance of Bitcoin in the market and the large amount of trading activity surrounding it. They undoubtedly reflect the continued popularity and importance of Bitcoin in the global financial sector.