Bitcoin

Bitcoin is a better hedge against the USD than gold

Since Black Thursday, Bitcoin (BTC) has been a better hedge against the US dollar than gold. At the same time, the correlation to the S P 500 index reached record highs.

Correlation diagram. Source: Coinmetrics.

Different routes after Black Thursday

Since the breakup of the Bretton Woods system in 1971, investors have viewed gold as insurance against Fiat. Gold has consistently shown a negative correlation to the dollar, with a few very rare exceptions, while Bitcoin and the dollar have not been correlated until recently.

Bitcoin is a better hedge against the USD than gold
Bitcoin is a better hedge against the USD than gold

US. Dollar index (DXY)

United States Dollar Index (DXY). Source: Trade Economics.

However, Since Black Thursday’s fall in March, Bitcoin has had a stronger negative correlation with the dollar than with gold. The initial turnaround was caused by the loss of almost half the Bitcoin value and the appreciation of the dollar as investors fled towards quality.

The market is reducing the United States government

Soon, The roles were reversed. Bitcoin made up for the losses it had suffered when the dollar depreciated against its main rivals, Fiat and gold. The market has ruled out the US government’s response to the COVID-19 crisis. High mortality rates, nearly 50 million unemployed people, and unprecedented multi-million dollar stimulus packages have not raised confidence in the country’s economy in the eyes of investors.

In this inflationary environment Bitcoin, with its encoded inflation and limited supply, may be seen as an alternative to Fiat by more traditional investors. In addition, it has certain advantages over gold, such as the finite supply mentioned above and the simple immediate transfer.

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