The correlation between bitcoin and gold has been on the rise in the past few weeks, reinforcing the claims made by bitcoin supporters that the cryptocurrency is also a safe-haven asset. During this period, its correlation with US stocks has fallen significantly, which could be attributed to the ongoing banking crisis. This shift in correlation patterns has brought back the debate about whether bitcoin can act as a hedge against turbulent times in the global markets.
The decoupling of bitcoin from stocks has been a long-awaited event for cryptocurrency enthusiasts. The correlation between bitcoin and the stock market had been rising steadily over the past few years, putting into question the perceived utility of bitcoin as a safe haven asset. However, the recent banking crisis and a surge in core inflation in Europe have fueled a fresh rally in bitcoin, which breached the $26,000 threshold twice this week. The cryptocurrency’s tendency to move alongside US stocks has also been reduced, while its relationship with gold has strengthened.
The banking crisis triggered by the collapse of the SVB banking group in the US has taken a toll on the stock market. The regulatory authorities’ decision to shutter the bank has led investors to worry about the stability of other banks, hence the selloff on banking stocks. The US stock market has struggled over the past year, owing to record-high inflation and aggressive interest rate hikes. The market pressure has increased in the past week following the SVB closure, leading to a multi-year low in bank stock prices.
The stock market selloff seems to have had a positive impact on the cryptocurrency market, specifically on bitcoin. The cryptocurrency, known for its volatility, has surged over the past week, as investors seek refuge amid the banking crisis. Bitcoin’s correlation with gold has also strengthened, a trend that could support the claim that bitcoin is a safe-haven asset. According to some experts, the real test for bitcoin’s safe haven status could be during a severe global economic crisis.
The recent surge in bitcoin prices can also be attributed to the rising inflation rate in Europe. The latest consumer price index (CPI) data shows that core inflation in the eurozone rose from 5.3% in January to 5.6% in February, which has fueled the demand for bitcoin as an inflation hedge. As governments worldwide continue to inject stimulus packages into their economies to rescue them from the ongoing financial crisis, investors are wary of inflation and are seeking alternative investments.
Gold, another safe haven asset, has also seen its price soar amid the banking crisis. Spot gold has risen by 1.2% to $1,945 per ounce, as investors seek refuge in safe investments. However, some investors are divided on the future outlook of gold. While most see a bullish trend for the precious metal in the short term, others are predicting a decline in prices if the Federal Reserve decides to deliver an aggressive rate hike next week. Nonetheless, most analysts believe that the central bank will opt for another 25 basis points (bps) increase.
In conclusion, bitcoin’s correlation with gold has witnessed a significant rise in the past few weeks, which has bolstered the argument that bitcoin is a safe-haven asset. The cryptocurrency’s correlation with US stocks has diminished, mainly due to the ongoing banking crisis. The decoupling of bitcoin from stocks has been a long-awaited event for cryptocurrency enthusiasts, as it would elevate bitcoin’s status as a safe haven asset. With the ongoing market turbulence, investors are increasingly looking to safe investments, and bitcoin seems to be the perfect fit. While the future of bitcoin is uncertain, the surge in its price indicates that it may have a bright future ahead.
In summary, the recent banking crisis and a surge in core inflation in Europe have fueled a fresh rally in bitcoin, which breached the $26,000 threshold twice this week. Bitcoin’s trend to move alongside US stocks has reduced, while the relationship with gold has strengthened. The decoupling of bitcoin from stocks has brought back the debate about whether bitcoin can act as a hedge against turbulent times in the global markets. While the future outlook for gold looks bullish, the bullion might come under pressure if the Federal Reserve decides to deliver an aggressive rate hike next week. Nonetheless, most analysts believe that the central bank will opt for another 25 basis points (bps) increase.
