Bitcoin’s correlation with gold rises
Nairobi (CoinChapter.com) - Bitcoin's correlation with traditional safe-haven asset gold has steadily increased, according to Kaiko data. The world's largest cryptocurrency's 60-day correlation with the precious metal has reached levels not seen since the 2022 highs, raising questions about whether Bitcoin is truly independent of traditional markets.
Has Bitcoin lost its status as “digital gold”?
Over the years, Bitcoin’s correlation with gold has fluctuated. In late 2023, the correlation turned negative, indicating that the two were moving in opposite directions. 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.
Kaiko’s chart clearly shows this trend. The increase in correlation may affect investment strategies because highly correlated assets provide poor diversification. Investors may need to reconsider their portfolios.
Gold prices have fluctuated significantly this year, reaching a high of nearly $2,450 in May before falling about 41% to $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
One of the core selling points of cryptocurrencies such as Bitcoin is their decentralized nature. They operate outside the control or influence of governments. However, Bitcoin's growing correlation with gold threatens this principle.
As the correlation strengthens, Bitcoin’s price movements become more closely tied to gold’s. Notably, this development could undermine the cryptocurrency’s appeal as a safe haven against traditional markets and call into question its role as a revolutionary financial tool.
Additionally, the growing correlation between Bitcoin and gold also presents a diversification challenge for cryptocurrency 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 portfolio may be affected.
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. Most importantly, these figures highlight Bitcoin's huge presence in the market and the significant trading activity surrounding it. They undoubtedly reflect Bitcoin's continued popularity and importance in the global financial landscape.