The correlation between Bitcoin and gold, a traditional safe-haven asset, has been steadily increasing, as per data from Kaiko. The 60-day correlation between the world’s largest cryptocurrency and the precious metal has reached levels not seen since 2022, raising concerns about Bitcoin’s proclaimed independence from traditional markets.
Bitcoin’s correlation with gold has fluctuated over the years. In late 2023, the correlation turned negative, indicating opposite movements. However, recent months have shown a positive trend, with the correlation currently below 0.2, still far from the 0.5 level observed in 2022.
The chart from Kaiko clearly demonstrates this trend. The rising correlation could have an impact on investment strategies, as highly correlated assets provide limited diversification. Investors may need to reconsider their portfolios.
Gold has experienced significant price fluctuations this year, reaching a peak of around $2,450 in May before declining by over 4% to approximately $2,328.20. This volatility could influence Bitcoin’s relationship with gold. If gold prices continue to fluctuate, it may affect Bitcoin’s market behavior and subsequently impact investment strategies.
One of the key selling points of cryptocurrencies like Bitcoin has been their decentralized nature, operating outside the control or influence of governments. However, the increasing correlation between Bitcoin and gold, an asset deeply rooted in traditional financial systems, threatens to undermine this principle.
As the correlation strengthens, Bitcoin’s price movements become more intertwined with those of gold. This development could potentially undermine crypto’s appeal as a hedge against traditional markets and raise doubts about its role as a revolutionary financial instrument.
Furthermore, the growing correlation between Bitcoin and gold presents a diversification challenge for crypto investors. Traditionally, assets with low or negative correlations have been favored for portfolio diversification as they tend to move independently, reducing overall risk. However, as Bitcoin’s correlation with gold rises, its potential to provide diversification benefits within a broader investment portfolio may be compromised.
In addition, as of May 31, 2024, the price of Bitcoin stands at $67,410.32 per BTC/USD, with a market capitalization of $1,328.39 billion. The 24-hour trading volume is $27.73 billion. These figures highlight Bitcoin’s significant market presence and the substantial trading activity surrounding it, reflecting its ongoing popularity and importance in the global financial landscape.