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Is the growing correlation between Bitcoin and gold a bullish sign?

July 31, 2020

As Bitcoin (BTC) returned to its 2020 high of $ 11,392 this week, the correlation with gold increased, and currently BTC’s monthly correlation with daily gold yields is 0.66 with data from CryptoCompare.

The correlation started to increase when gold exceeded $ 1,900. Reach a new high before pulling back on Bitcoin at the same time.

The increase in correlation represents a change in trend, since the relationship between the two had previously declined, according to the exchange’s research team, Kraken.

Is the growing correlation between Bitcoin and gold a bullish sign?Is the growing correlation between Bitcoin and gold a bullish sign?

BTC monthly correlation to daily returns

BTC monthly correlation with daily returns. Source: CryptoCompare

As the correlation between gold and bitcoin has increased, The correlation between Ether (ETH) and Bitcoin began to decrease around the same time and is now 0.56.

CryptoCompare Research Analyst, James Li, he said to Cointelegraph:

With innovations and excitement around DeFi, we are gradually seeing decoupled prices in the crypto space. Ethereum is an intermediary and we have seen a much stronger profit in the past few weeks, along with the profits from other DeFi tokens. “

Is BTC’s strong correlation with gold a bullish or bearish sign?

Often referred to as “digital gold” Bitcoin’s correlation with the precious metal could further consolidate its position as a value-preserving asset at a time when the Federal Reserve is preparing to adopt another stimulus package due to the corona virus.

Li noted that during previous correlations between Bitcoin and gold caused sudden price increases from BTC, the context has certainly changed.

The analyst said:

“The last time Bitcoin had a moderate correlation with gold (around 0.5) was towards the end of 2018. Back then, a month earlier, in November of the same year, Bitcoin had to accept a 50% decline (at its highest point) the Bitcoin Cash War) and recovered a little. Gold recovered from a somewhat cyclical decline a few months earlier. The moderate correlation may have been a coincidence back then. “

As the dollar and the economy continue to deal with the aftermath of the COVID 19 pandemic, it is likely that value-adding assets such as Bitcoin and gold will continue to be in high demand.

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