According to research from blockchain analytics firm Kaiko, Bitcoin’s correlation to gold reached its highest level in over a year in March.
This newfound correlation occurred as the correlation to the stock market decreased, indicating that Bitcoin may be moving towards becoming a risk-off asset.
Bitcoin as Digital Gold
Kaiko’s report shows that the correlation between Bitcoin and gold is now at 50%, while the correlation to the stock market is roughly 20%, decreasing since December.
“It’s a significant shift because over the course of 2022 Bitcoin and gold were mostly uncorrelated,” Kaiko analyst Dessislava Aubert told Decrypt. “So, it was not moving as a safe haven [asset] at all.”
Bitcoin has often been compared to “digital gold,” with some suggesting it could replace gold as a safe haven monetary instrument. Like gold, Bitcoin is reliable, scarce, divisible, and pure, while also offering the benefits of digitization that make it a highly effective form of money.
However, this theory failed to live up to reality, with Bitcoin and crypto heavily correlated with the stock market throughout last year, often well above 50%, as risk assets plummeted in the face of tightening interest rates from central banks worldwide.
Similarly, correlations between Bitcoin and gold ran at 0% or negative, even as annual inflation reached multiple 40-year highs, a phenomenon that Bitcoin and gold are theorized to fight against.
Panic in the Banking Sector
In mid-March, Bitcoin rallied to $28,000 and gold rose to almost $2000/oz. After banking fears took hold in the US, with Silicon Valley Bank and Signature Bank closing, the Federal Reserve agreed to backstop all depositors and add hundreds of billions of dollars in liquidity to prevent further bank runs.
Recently, deposit outflows from US banks have registered their 9th straight weekly decline, with large banks experiencing $129 billion in outflows last week, the largest weekly figure to date.
Bloomberg analyst Mike McGlone has predicted that gold might break past its all-time resistance of $2000 if banking crises continue, as instability spreads throughout Europe, where Credit Suisse was bought out by UBS following a bank run, and even Deutsche Bank experienced a brief demand spike in the cost of its default insurance.
Similarly, Bitcoin bulls are excited that macro conditions have aligned to ignite the asset’s next bull market. BitMEX co-founder Arthur Hayes has written an essay on the matter, arguing that the Federal Reserve’s Bank Term Funding Program will pump a similar amount of money into the economy as did Covid relief, with a similar positive impact on stocks and crypto.
However, even outspoken Bitcoin advocate and author of The Bitcoin Standard, Saifedean Ammous, who argued that Bitcoin is superior to gold as money, doubts that this prediction will manifest so dramatically, although former Coinbase CTO Balaji Srinivasan has staked $2 million on Bitcoin’s price reaching $1 million in less than three months as hyperinflation ensues.