Bitcoin’s correlation with gold sinks to two-year low, a warning for investors

Key Takeaways

• Bitcoin’s correlation with gold is at a two-year low
• Divergence highlights yet again that Bitcoin remains a risk-on asset
• This may change in the future, but for now, Bitcoin resides on the long-end of the risk spectrum 
• With full effects of tight monetary policy still to come, market should not get ahead of itself

Bitcoin’s correlation with gold continues to fall, highlighting the oft-repeated goal of achieving a store-of-value status akin to digital gold remains a long way off for now. 

We looked into this last month, when the correlation between gold and Bitcoin fell to the lowest value since the FTX collapse in November, an event which sparked mayhem in the crypto markets while the rest of the financial world traded quite placidly, including gold. 

Since then, the correlation has continued to fall. Indeed, looking at the more volatile 30-day Pearson correlation metric, the relationship is approaching a near-perfect negative one over the past thirty days. The last time it dipped this close to -1 was over two years ago (it nearly hit this level post-FTX also). 

While the prior metric is a little noisy and bounces around a lot due to the rolling 30-day window sample size, the next chart displays the same indicator but over a 60-day rolling window. Outside of the FTX collapse in November, the 60-day correlation is the lowest it has been in eighteen months, when Russia invaded Ukraine in February 2022 and sparked extreme volatility in the financial markets.

What does this tell us? Not much, really, beyond what we already know: Bitcoin trades like a risk-on asset. That much has been clear over the past two years or so, as one of the fastest rate hiking cycles in recent history has pulled the rug out from risk assets. The Nasdaq shed a third of its value last year in what was the worst year for stocks since 2008. Bitcoin was far from immune, falling down to a low of $15,500 in the aftermath of the FTX collapse. 

While the question over whether Bitcoin can decouple from risk assets in the long term remains one of the most intriguing, the numbers make it blindingly obvious that this has not happened to date. The pullback during last year’s bear market also emphatically strikes down any assumption that Bitcoin’s days of violent drawdowns were behind it (we are most definitely not in a “supercycle”),…