Bitcoin’s correlation with gold, a traditional safe-haven asset, is on the rise, according to data from Kaiko. The 60-day correlation between the world’s largest cryptocurrency and gold has reached levels not seen since 2022, raising concerns about Bitcoin’s supposed independence from traditional markets.
The correlation between Bitcoin and gold has been fluctuating over the years. In late 2023, the correlation turned negative, indicating opposite movements. However, recent months have shown a positive trend, although it is still below the 0.5 level seen in 2022.
Kaiko’s chart clearly illustrates this trend. The increasing correlation could have an impact on investment strategies, as highly correlated assets do not provide effective diversification. Investors may need to reconsider their portfolios.
Gold has experienced significant price movements this year, reaching a peak near $2,450 in May before falling by over 4% to around $2,328.20. This volatility may influence the relationship between Bitcoin and gold. If gold prices continue to fluctuate, it could affect Bitcoin’s market behavior and investment strategies.
One of the key selling points of cryptocurrencies like Bitcoin has been their decentralized nature, operating outside of government control or influence. However, Bitcoin’s increasing correlation with gold, a deeply entrenched asset 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 could erode 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, mitigating overall risk. However, as Bitcoin’s correlation with gold increases, its potential to provide diversification benefits within a broader investment portfolio may be compromised.
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.