Bitcoin and gold are increasingly correlated

Both bitcoin and gold have become popular with investors seeking alternatives to the dollar. Photo: iStock

As Bitcoin (BTC) surged to a 2020 high of $11,392 this week, its correlation with gold has increased, and currently, according to data from CryptoCompare, the correlation between Bitcoin and gold’s daily returns is 0.66.

As gold prices broke above $1,900, approached new highs, and then pulled back along with Bitcoin, the correlation began to increase.

According to data from Kraken Exchange’s research team, the increase in correlation signals a change in investment trends as the relationship between the two had previously been declining.

Is Bitcoin’s strong correlation with gold bullish or bearish?

Bitcoin is often referred to as “digital gold,” and its correlation with the precious metal could further solidify its status as a store of value asset as the Federal Reserve prepares to pass another coronavirus stimulus bill.

While the previous correlation between Bitcoin and gold led to a surge in Bitcoin’s price, things have certainly changed.

The last time Bitcoin’s correlation with gold was up [around 0.5] was around the end of 2018. That was in November 2018, a month ago, Bitcoin fell 50% and then had some rebound, while gold was just recovering from a cyclical decline a few months ago. Maybe the Bitcoin-gold correlation is just a coincidence.

As the U.S. dollar and the global economy continue to struggle from the impact of the coronavirus pandemic, it seems likely that store of value assets like Bitcoin and gold will continue to be in high demand.