In the last four months gold has lost $4 trillion in market valuation. Bitcoin, in turn, has gained about $180 billion over the same period.
Both gold and Crypto Bull have been the beneficiaries of the Federal Reserve’s aggressive monetary easing policy. The precious metal reached its record high of $2,075.82 an ounce on August 7, 2020.
But it could not hold the peak. A wave of profit selling occurred and corrected the XAU/USD price by up to 14.97 percent.
Bitcoin, on the other hand, also saw local sell-offs, but continued to rise. On December 1, 2020, the flagship crypto currency reached a new record high of $19,873 per token (Coinbase data). The upward trend was reminiscent of earlier studies that showed a delayed positive correlation between gold and Bitcoin.
Bitcoin has increased by more than 400 percent since March 2020.
Does this mean that Bitcoin will also suffer the same fate as gold after it reached its all-time high? Opinions differ on this.
The value memory thesis
According to JP Morgan Chase & Co., family offices are actively selling their gold-based exchange-traded funds to invest in crypto-currencies. So far, they have sold 93 tons of precious metal worth around $5 billion. At the same time, the capital inflow into the Grayscale Bitcoin Trust has doubled.
The study makes gold and Bitcoin look like competing assets. This means that investors are more likely to switch their value storage from physical to digital, which would divert a good portion of the capital from the so-called obsolete markets.
Dan Tapeiro, a macro-investor who is invested in both gold and Bitcoin, believes this is possible. Tapeiro:
“$2 trillion worth of gold has been wiped away in the last 4 months. No, not everything has gone into Bitcoin, which has gained $180 billion over the same period, but a 10% rate would still be impressive”.
Charlie Morris, Chief Investment Officer at ByteTree Asset Management, also believes that money has flowed from the gold markets to Bitcoin. However, he also recalls that platinum – a commodity rival – has also been on an upward trend in recent sessions and offers more than one alternative to the yellow metal.
“The gold market has been quite hot this summer, so it is not surprising that the price is falling a little bit on the way to the end of the year,” Morris said. “Some money has flowed out of gold, perhaps it has flowed into platinum because of the green movement, and obviously some of it has flowed into Bitcoin because of all this excitement.
Problems with Bitcoin’s correction
Time and again, one reads about reports that Bitcoin would reflect gold – but with a delay. In fact, certain technical fractals signal that BTC would test $25,000 before going down again, as gold did after the August high.
Bitcoin-gold correlation since September 2018 (as of last week).
As the chart above shows, the correlation of Bitcoin to gold signals that Bitcoin would extend its upward trend towards the 1.138 Fibonacci mark. Now, all of the analysts mentioned above believe that gold could recover.
This means that despite a massive downward correction, Bitcoin may be doing the same. Morris explains:
“Bitcoin and gold are both on the right side of the inflationary trajectory. They are both assets that will protect investors from the massive fiat currency devaluation trade that is coming.