Key Takeaways
What does the current gold correlation say about BTC?
BTC has flipped to a “risk-on” regime and doesn’t trade as a ‘safe haven’ like BTC.
What’s next for BTC?
According to Arthur Hayes, a recovery is likely if the government shutdown ends.
Bitcoin [BTC], often referred to as digital gold, has been likened to the beta version of physical gold. However, gold’s massive outperformance has left people questioning the relationship between the two supposedly “safe havens.”
Gold has surged nearly 50% year-to-date (YTD), while Bitcoin has returned just 8%, down from over 20% gains before its recent correction from $126K to $100K.
Source: BTC vs gold performance, TradingView
Gold has been on a tear, jumping from $2,600 to over $4,300, with the sharpest moves occurring in August and October.
In fact, BTC also reached a new peak of $126K, a move JPMorgan analysts called a “debasement trade”- a long-term demand for safe havens amid unsustainable fiscal debt.
Still, gold has maintained its lead over BTC.
Decoding BTC, gold correlation
BTC is not always positively correlated with gold. There are periods when the assets decouple, leaving BTC to follow equities and act like a risk-on asset.
During risk-on periods, the crypto asset tends to trade similarly to the S&P 500 or the tech-heavy Nasdaq Composite.
Source: The Block
The latest decoupling happened on the October 10 crash. The correlation to gold dropped from 0.7 and has been negative since late last month.
What’s striking is that the BTC momentum has been decoupled from the S&P 500 and the Nasdaq over the past few weeks, as well.
However, based on past trends, it will likely positively correlate with either of the assets soon. So, which path will it follow?
According to on-chain analyst Axel Adler, BTC could soon shift into a “risk-off” regime if the risk assessment model surpasses 60.
Source: CryptoQuant
In other words, it could follow gold or trade as a “safe haven” again. But correlation doesn’t imply causation. So, what’s driving BTC now that it’s still somewhat “risk-on.”
According to BitMEX founder Arthur Hayes, the BTC extended correction from $126,000 to $100,000 was driven by a liquidity crunch.
Hayes said that the recently raised debt ceiling allowed the government to borrow money from the markets, resulting in a net negative liquidity position that capped risk assets.
He added,
“When the U.S. government shutdown ends, TGA will fall, positive for dollar liquidity, and $BTC will rise”
Source: Bloomberg
Overall, despite being perceived as a haven, BTC sometimes decouples from physical gold. In the short term, however, it may rebound if the government shutdown is over.