Bitcoin is widely known as digital gold, and some believe that investors also see the cryptocurrency as a safe haven from global instability. The recent conflict between the United States and Iran would seem to prove this thesis, as Bitcoin’s price rose with along with gold during these tension-filled early days of 2020.
Longer term data, however, paints a different picture. Just like we found around this time last year, there is effectively no correlation between the prices of Bitcoin and gold.
Bitcoin Price Correlation Data
The data in the below chart shows the level of correlation between Bitcoin and gold, Ether, and the S&P 500. A 90-day Spearman rank correlation calculations is used by Coin Metrics to display the data.
In a Spearman rank correlation calculation, price correlation is measured on a scale from -1 to 1. A score of -1 indicates a perfect inverse correlation, a score of 0 indicates no correlation, and a score of 1 indicates to a perfect level of positive correlation.
As the chart shows, price correlation between Bitcoin and gold has hovered around 0 to 0.2 since late 2013. This would point to a very weak level of correlation between the two assets. Ether, on the other hand, shares a high degree of correlation with Bitcoin, especially since early 2018.
Bitcoin has at times appeared to act as a safe haven from global turmoil. We pointed out that Bitcoin performed strongly around the June 2015 Greek debt crisis, the Brexit vote in June 2016, and Donald Trump’s November 2016 election.
But the level of correlation between Bitcoin and gold has remained roughly the same for almost the entirety of the available history. Despite claims that Bitcoin has achieved status as a safe haven asset in times of turmoil, the reality is the cryptocurrency was slightly inversely correlated with gold as recently as October 2019.
While the numbers look better when an alternative measurement of correlation is used, they still aren’t strong enough to say these two assets are strongly correlated. Additionally, reports regarding increases in the level of correlation between Bitcoin and gold prices have turned out to be short-lived blips on historical charts.
While it’s true that the Bitcoin price rose with gold after Qasem Suleimani was killed, the reality is the long term trend for Bitcoin and gold price correlation is weak. One incident does not prove a trend, and there have been multiple instances of Bitcoin and gold moving in opposite directions.
The digital gold analogy still works for Bitcoin as a general sentiment, as its an apolitical, uncontrolled digital asset; however, it’s still a long way from gaining respect as a safe haven on the level of gold. Going forward, the price correlation between Bitcoin and gold should be watched closely, as a higher degree of correlation could indicate that Bitcoin is gaining ground as a legitimate alternative store of value.