Bitcoin-Gold Correlation Rises Amid Banking Turmoil, Outperforming Stocks

Bitcoin-Gold Correlation Rises Amid Banking Turmoil, Outperforming Stocks

Research from blockchain analytics firm Kaiko shows that Bitcoin’s correlation with gold rose to its highest level in over a year in March.

The newly discovered correlation has come amid a falling correlation with the stock market, suggesting that Bitcoin may be drifting towards a risk-averse asset status.

Bitcoin as digital gold

According to Kaiko's report, the correlationbetween Bitcoin and gold is now 50%. Its stock market correlation is now around 20%, after declining since December.

“This is a significant shift because throughout 2022, Bitcoin and gold have been largely uncorrelated,” Kaiko analyst Dessislava Aubert told Decrypt. “So it didn’t move as a safe haven [asset] at all.”

Bitcoin bulls have often even compared Bitcoin to “digital gold.”hypothesesthat it could replace precious metals as a safe monetary instrument in the 21st century. Like gold, Bitcoin is reliably scarce, divisible, and pure, but offers additional benefits of digitization that make it an effective form of money.

But for a long time the theory could not do justice to reality. Bitcoin and crypto were highly correlated with the stock market throughout last year, often well above 50%, as risk assets slumped amid rising central bank interest rates around the world.

At the same time, correlations between Bitcoin and gold were often 0% or negative. This came as annual inflation hit multiple 40-year highs – a phenomenon that Bitcoin and gold are theoretically designed to combat.

Panic in the banking sector

Things changed in mid-March when Bitcoin rose to $28,000 and gold rose just below $2,000/oz after banking fears swept the United States. After Silicon Valley Bank and Signature Bank closed together, the Federal Reserve agreed to freeze all depositors and reinject hundreds of billions of dollars of liquidity into the banking system to prevent further bank runs.

In fact, bank deposit outflows recently posted their 9th consecutive weekly decline, with major banks recording outflows of $129 billion last week - the largest weekly figure ever.

Last week, Bloomberg analyst Mike McGlonepredictedthat gold may be able to break its all-time resistance of $2000 if the banking crisis continues. Instability has already spread to Europe, where Credit Suisse wasbought outfrom UBS after a bank run, and evenDeutsche Bankexperienced a brief spike in demand for the cost of its default insurance.

Similarly, Bitcoin bulls are excited that macro conditions have adjusted to revive the asset's next bull run. BitMEX co-founderArthur Hayeswrote an essay on the topic last month, arguing that the Federal Reserve's Bank Term Funding Program will pump a similar amount of money into the economy as Covid relief, while having a similar positive impact on stocks and crypto.

Former Coinbase CTO Balaji Srinivasan went so far as to bet $2 million on the price of Bitcoin, which reached $1 million in less than 3 months as hyperinflation ensued. But even Bitcoin Standard author Saifedean Ammous – who argued in his book that Bitcoin is superior to gold as money –Doubtthat this prediction will manifest itself.

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