Bitcoin Is Becoming More Correlated with Gold, Less with AltcoinsBy Kyle Torpey
Bitcoin is often referred to as “digital gold” due to the apolitical nature of its monetary policy and transactions. While gold has always existed as a hedge against various governments’ poor handling of the money supply, Bitcoin exists as a way to opt out of the traditional fiat currency system and avoid overbearing financial surveillance as the world moves closer to a cashless society.
That said, the gold and Bitcoin prices do not tend to move in tandem. In fact, historical data from Coin Metrics indicates there has been effectively no correlation between the two assets over the past five years.
However, if you look at the data from this year, there has been an increased correlation between gold and Bitcoin prices. At the same time, altcoins have become less correlated with Bitcoin.
Behind the Data
Correlation is typically measured on a scale of -1 to 1. A score of -1 would indicate that two variables are inversely correlated, a score of 0 would indicate no correlation whatsoever, and a score of 1 would indicate perfect correlation.
This form of measuring the level of correlation between two variables is known as Spearman’s rank correlation coefficient.
When looking at the year-to-date correlation data from Coin Metrics, shifts in major altcoins’ and gold’s correlation with the Bitcoin price can be seen starting in April. Here are the changes seen from April 1 to July 10:
Ether: 0.91451 to 0.73607
Bitcoin Cash: 0.82189 to 0.72571
Litecoin: 0.80934 to 0.61724
Gold: 0.07508 to 0.22846
Although Bitcoin’s correlation with gold has increased, it has still only moved from a “very weak” to “weak” correlation. And despite the decline in correlation with altcoins, Bitcoin would be said to have gone from a “very strong” to “strong” correlation with Ether, Bitcoin Cash, and Litecoin at these levels.
It should be noted that Bitcoin’s correlation with altcoins was at all-time highs earlier in the year. This strong correlation weakened as Bitcoin rose in price much more substantially than nearly all major altcoins from April 1 to July 1.
At the same time, the “currency wars” have led to a rise in the price of gold. At the Bitcoin 2019 conference late last month, a number of speakers pointed out that global, macroeconomic factors, such as never-ending government debt increases and loose monetary policy, could create a “perfect storm” for the Bitcoin price when combined with next year’s halving of the amount of new Bitcoin generated by miners every ten minutes.
In the long term, it would make sense for Bitcoin and gold to become more correlated — at least if there is any truth behind Bitcoin’s “digital gold” meme. These past few months could be an indication that Bitcoin is already viewed as a digital alternative to gold.
Notably, Federal Reserve Chairman Jerome Powell compared Bitcoin to gold during testimony regarding Facebook’s Libra cryptocurrency given to the Senate Banking Committee on Thursday.
Bitcoin bulls eventually expect the digital asset to disrupt the estimated $7 trillion gold market. Additionally, Blockchain Capital’s Spencer Bogart recently pointed out that the bull case for Bitcoin as a store of value asset extends far beyond just the gold market.