Bitcoin is often referred to as “digital gold,” as it has proven to be a unique asset class and, more importantly, a reliable store of value over the years. While gold certainly outperforms Bitcoin in terms of longevity, investors commonly use both assets as a hedge against economic instability and inflation.
Interestingly, there is always a positive correlation between Bitcoin and gold, which leads to limited diversification opportunities for investors. However, the latest data shows that the leading cryptocurrency and precious metals have decoupled from each other in recent weeks.
BTC loses its connection to gold – what’s next?
In a recent Quicktake post on the CryptoQuant platform, an analyst with the pseudonym Darkforst I talked about it The current relationship between the price of Bitcoin and gold. According to the expert, there is an ongoing disconnect between the leader in the cryptocurrency market and the gold market.
For context, correlation is a metric that measures the degree of correlation (how closely related) the price trend of two specific assets is. When the correlation value is positive, it means that the two assets are moving in the same direction. It is worth noting that the closer the value of the measure is to 1, the more correlated the assets are.
On the other hand, a correlation value less than 0 indicates that the two assets are negatively correlated, meaning they move in opposite directions. Likewise, the closer the correlation value is to -1, the less closely related the assets are.
While the gold market has performed well in recent months, the price of the metal has declined over the past few weeks. On the other hand, Bitcoin price enjoyed strong upward momentum in November, hitting all-time highs in recent weeks.
Source: CryptoQuant
As a result, the correlation between the price of Bitcoin and gold fell below the zero mark and moved into negative territory, as shown in the chart above. According to Darkfost, the breakup appears to favor BTC, as it could lead to a “liquidity shift” and cause more capital to flow into the flagship cryptocurrency.
Bitcoin price at a glance
As of this writing, Bitcoin’s price is hovering around the $98,000 level, reflecting a roughly 1% decline over the past 24 hours. However, the performance of the leading cryptocurrency on the weekly time frame is still very impressive. According to CoinGecko data, the market leader has risen more than 7% in the past seven days.
The price of BTC on the daily timeframe | Source: BTCUSDT chart on TradingView
Featured image from iStock, chart from TradingView