While Bitcoin is now more accessible than ever to trade on the stock market via ETFs, Bitcoin’s correlation with gold is currently at an all-time high.
The correlation between Bitcoin and gold prices has climbed to new highs in recent months following the near-bullish run-up to 2023 and the approval of a spot Bitcoin ETF.
For most of the digital asset’s history, Bitcoin’s correlation with gold has fluctuated. This means that the prices of the two assets have largely moved independently—when one goes up, the other doesn’t necessarily follow. But after the market crash at the start of the COVID-19 crisis in 2020, the correlation has become tighter and is now approaching historical levels again.
The correlation between Bitcoin and gold is currently 0.76 (or 76%). A correlation of 1 means there is a perfect positive correlation between two variables, in this case the prices of Bitcoin and gold (-1 means a perfect negative correlation). While Bitcoin's correlation with gold has not yet reached historical levels, it is getting closer.
“Bitcoin’s relationship with [traditional financial] markets has been evolving,” cryptocurrency exchange Binance noted in a report published earlier this month. “Bitcoin’s correlation with the S&P 500 is currently at its lowest level in more than three years.” In line with the long-term trend, Bitcoin’s correlation with gold has seen a notable spike, to about 75% by the end of 2023. This peak coincided with global central bank rate hikes, marking a temporary shift in stock market behavior.
Still, Bitcoin’s affinity with gold has only strengthened, with the current correlation at 76%, just a few points below its all-time high of 79%. This suggests that the relationship between the two assets (both viewed as strong stores of value by their proponents) is straining, even as Bitcoin takes over more aspects of mainstream finance.
The chart also shows that the Bitcoin-to-gold ratio climbed sharply throughout 2023, peaking at the end of the year before retracing slightly at the beginning of this month, possibly as the hype around the ETF faded. The Bitcoin-to-gold ratio is a metric calculated by dividing the price of Bitcoin by the price of gold, and it tells us roughly how many ounces of gold one Bitcoin can buy.
At its peak, the ratio reached an impressive 22.5, meaning that 1 BTC could buy 22.5 ounces of gold. The chart, which shows Bitcoin’s purchasing power relative to gold, reaffirms the belief of Bitcoin faithful that it provides a reliable store of value.
But why would Bitcoin be more aligned with gold, especially when Bitcoin’s entry into the stock market via ETFs suggests a shift in its correlation with stocks? It appears that despite Bitcoin’s these stock-like characteristics, investors may still be seeking comfort from Bitcoin’s gold-like qualities.
With U.S. inflation hovering above the Fed’s desired 3.35% target and Bitcoin surging 155% in 2023, the picture seems clear. Investors are not only seeking growth; they are also seeking stability in the face of economic uncertainty. Bitcoin, with its gold-like properties, provides a semblance of this stability.
Bitcoin’s affinity with gold highlights the complexity and variability of Bitcoin as a digital currency and asset class. As Bitcoin matures, it appears to retain some of the qualities of gold while also taking on characteristics of stocks and commodities.
