Bitcoin and gold going again on the same route

As gold climbed to the $ 1,500 psychological mark, another speculative asset has also begun a recovery.

Bitcoin is far from its historic peak; in fact, it is below the high of last June. However, both assets appear to have been marching in lockdown for the past three months, a rarity.

We observed a similar phenomenon three years ago. At that time, UK voters had just made the surprise decision to leave the European Union. The pound sank and the rest of the world remained in a panic trying to figure out what it all meant. At the time, we were unconvinced that bitcoin had merged gold as a housing asset, writing that it would take some more global fears to confirm that hypothesis.

The uncertainty is back. US-China tensions have escalated beyond trade to include a Cold War technology and this week’s imminent collapse, which quickly sparked outrage from President Donald Trump.

The correlation between Bitcoin and gold over the past year is 0.496. In the last three months, this amounted to 0.827, according to our analysis. (A correlation coefficient of 1 indicates that assets move in the perfect blockchain, while minus-1 would indicate that they move in exactly opposite directions.)

It is important to provide a standard statistical disclaimer: Correlation does not imply causation. I’m not convinced that Bitcoin always moves simply through market forces. Like others, I suspect that Tether, the so-called stablecoin with disputed legitimacy, plays a major role in the liquidity of the crypto markets and affects the price of Bitcoin.

However, the recent move of gold and Bitcoin does not seem random. In simple words, think of it as the flip of two currencies, each representing the movement of asset prices on any given day. On average, we would expect to see two heads 25% of the time and two tails 25% of the time – in other words, both assets would move in the same direction 50% of the time.

This is what we saw over the past year. Opposite 49% of the time, both for 22% and both up to 29% of trading days. But over the past three months, since May 8, they have moved together 58% of the time.

Sixty-six days of trading may not be statistically significant, but that doesn’t mean this should be ignored. The evidence is mounting that investors – rightly or wrongly – see Bitcoin as a haven in times of turmoil./Investing.com

 

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