Bitcoin and Gold Positive Correlation is at Highest Level Ever

Last week, the correlation between Bitcoin and gold hit the highest level in over a year. Gold performed well earlier this year despite the dips witnessed in crypto and stock markets. However, the precious metal has lost all these gains, dropping by 10% year-to-date (YTD).

Bitcoin and gold hit the highest correlation level ever

Gold made a notable uptrend following the conflict between Russia and Ukraine earlier this year. At the time, most financial assets were tanking, with cryptocurrencies and stocks being some of the largest losers.

However, gold is no longer outshining the rest of the financial market. The precious metal has lost all its gains and has dropped by 10% YTD. On the other hand, Bitcoin has dropped by double-digits in 2022. Bitcoin has plunged amid monetary tightening policies by central banks globally.

Central banks have been raising inflation levels to keep inflation in check. However, inflation has remained notably high despite monetary tightening. Gold has also failed to act as a safe-haven asset. As a safe asset, gold is expected to perform as a store of value during periods of inflation and depreciating values of fiat currencies.

Over the last year, Bitcoin has remained uncorrelated with gold. The correlation between the two assets ranges between negative 0.2 and positive 0.2. Nevertheless, amid the strengthening of the US dollar, both crypto and gold have weakened, which has increased the correlation between the two assets, as per a report by Kaiko.

The correlation between Bitcoin and gold could be seen as a good thing by the Bitcoin community that believes the crypto asset can be used as a store of value. The narrative of Bitcoin being the “digital gold” for being a store of value has weakened this year after the asset lost around two-thirds of its value.

The performance of crypto markets in Q3

Bitcoin’s price witnessed strong volatility during the third quarter. The Bitcoin open interest in native units increased by 6% in September. The same also increased by more than 26% during the third quarter to around 380,000 BTC.

New capital also entered the world’s largest cryptocurrency during the second half of September amid a plunge in the spot prices. The funding rates declined in early September, showing the improved position of investors. However, these levels have remained neutral to negative, showing that the market uncertainty is still high.

A look at the liquidity levels in the BTC-USD trading pairs from Q2 to Q3 shows a notable change. The collapse of the Terra ecosystem in May and the credit crisis that happened in June triggered massive sell-offs that affected liquidity in Q2. During the second quarter, the spreads on almost all exchanges increased and remained volatile for weeks after market makers accounted for the high risk.

During the third quarter, the spreads settled, and there was minimum daily variation. However, markets remained volatile during the quarter. The Bitstamp exchange witnessed the best improvement in liquidity, with the spreads dropping by half from 5bps to around 2.5 in October.

As the crypto markets continue to recover from the devastating effects of the credit crisis in Q2, one of the coins you might consider buying is IMPT, which is the next crypto to explode. IMPT is a sustainable cryptocurrency better than other proof-of-stake coins such as Powerledger and SolarCoin.

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