• 101 days Could Crypto Overtake Traditional Investment?
  • 106 days Americans Still Quitting Jobs At Record Pace
  • 108 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 111 days Is The Dollar Too Strong?
  • 111 days Big Tech Disappoints Investors on Earnings Calls
  • 112 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 114 days China Is Quietly Trying To Distance Itself From Russia
  • 114 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 118 days Crypto Investors Won Big In 2021
  • 118 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 119 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 121 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 122 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 125 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 126 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 126 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 128 days Are NFTs About To Take Over Gaming?
  • 129 days Europe’s Economy Is On The Brink As Putin’s War Escalates
  • 132 days What’s Causing Inflation In The United States?
  • 133 days Intel Joins Russian Exodus as Chip Shortage Digs In
NFT Craze Could Get Bigger with Youtube

NFT Craze Could Get Bigger with Youtube

YouTube CEO Susan Wojcicki has…

China Has Set Out To Crush Crypto...Again

China Has Set Out To Crush Crypto...Again

The People’s Bank of China,…

  1. Home
  2. Cryptocurrencies
  3. Other

Will Bitcoin Ever Dethrone Gold?

BTC

The Winklevoss twins, well known for their love of everything Bitcoin, are famous for once declaring that “Bitcoin will one day become better at being gold than gold itself.”

If those claims seem a bit bizarre and distant, then recent claims by BK Asset Management's FX strategy managing director, Boris Schlossberg, that gold is “retaking its mantle as the key defensive asset against Bitcoin” will probably prove even more jarring.

They are in good company, too. Jeff Gundlach, aka the Bond King, once suggested that Bitcoin's meteoric rise in 2017 was responsible for the 10-percent fall in the Shanghai Composite.

Gundlach's sentiments came at a time when Bitcoin was fast becoming a darling for mainland punters amid expectations that it would offer a nice hedge against the yuan's devaluation and dodge China's anticorruption drive.

Weak Gold-Bitcoin Correlation

Throughout history, gold was widely considered the leading safe-haven asset because it has proved to be a reliable store of value, cannot be manipulated by interest rate policies by any single government--or worse, printed like fiat currencies such as the dollar.

Safe havens tend to increase in value or retain it at the very least when most other assets are losing it. Bitcoin's downside deviation is close to 50 percent, compared to gold's 8 percent. That fact alone makes it a tough choice for use as regular money let alone as a safe haven.

The gold and the dollar are diametrically opposed in their roles--a fact that is seen in the clear-cut inverse correlation between the price of gold and the trade-weighted U.S. dollar. Although the gold standard was scrapped in 1971, the inverse correlation between gold and the U.S. dollar still appears strong--one climbs when the other is coming down, and vice-versa.

(Click to enlarge)

Source: Macrotrends

Gold is much more resilient against Fed rates than the U.S. dollar.

Related: Meet The Hedge Fund Billionaires Club

Many traders and investors have long held the belief that gold prices bear an inverse correlation with interest rates. The reasoning here is that higher interest rates make fixed-income investments and bonds more attractive, so money naturally starts to flow from zero-yield investments such as gold into higher-yield investments such as bonds.

Yet studies have shown that correlation between gold prices and interest rates between 1970 and 2015 was only 28 percent, which is considered to be statistically insignificant.

(Click to enlarge)

Source: My Trading Buddy

The correlation between Bitcoin and gold has not been as well-studied as, say, the relationship between gold and interest rates, simply due to the fact that Bitcoin has been around far less longer.

Related: British Pound Soars To Highest Level Since Brexit

Further, any little evidence gathered over the years suggests that this relationship is speculative at best.

Generally, when overall market correlation is strong, the correlation between the pair tends to be strong as well. Likewise, when it's low so is the correlation between the two.

The one-year rolling correlation of gold and bitcoin returns was mostly positive up until 2015 when it turned negative. It is, however, important to note that the correlation averaged just 0.14 during the positive period and -0.2 during the negative period. A correlation score of 1 indicates perfect correlation, while zero indicates no correlation. The Bitcoin/Gold correlation has therefore so far been a weak relationship.

The weak relationship is largely a matter of size—and, granted, this could change as the Bitcoin market matures. Indeed, Wall Street's RBC recently reported detecting a weak inverse correlation between Bitcoin and gold once Bitcoin touched $20k.

But for now, the verdict is that gold doesn't have to reclaim its defensive mantle from Bitcoin because it never relinquished it in the first place.

By Alex Kimani for Oilprice.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment