Bitcoin [BTC] prices positively correlated to gold, finds research


The Wall Street Journal reported on December 28 that according to data from research firm Excalibur Pro Inc., Bitcoin [BTC] has traded with a correlation of 0.84 to gold over the past week. This is not entirely unexpected news, they say, as a lot of investors from traditional markets have put money into the BTC network, and so Bitcoin behaves a traditional asset, albeit a very risky one.

A score of -1 means BTC and gold are perfectly inversely related. A score of +1 indicates a perfect correlation between BTC prices and gold, meaning BTC price climbs when gold prices also increase.

Bitcoin and other cryptocurrencies have always courted money influx from institutions. This backing in research and development of new use cases fuels the growth of the cryptocurrency, both in value and popularity. The Journal cites examples of institutional money like the Bitcoin Investment Trust, sold by Grayscale Investments. All through 2018, Grayscale’s Bitcoin Investment Trust (GBTC) has been worth more than $1B, but dropped below this figure and is now close to $900M. Notably, GBTC is the only stock offered on the stock market whose primary asset is Bitcoin.

The Journal holds the position that Bitcoin’s correlation to traditional markets will only become closer as time progresses. Traditional capital continues to go into cryptocurrency markets, and some cryptocurrencies attempt to attract further institutional backing by conforming to regulations and building services like futures trading. Data from CoinDesk shows that venture capital in the investment and blockchain area has been growing over the years, reports the Wall Street Journal, from $96M in 2013 to an all-time total of over $2B in 2017’s tail.

Bitcoin was dubbed the “digital gold” and believed to be a store of value, much like gold. During the bull run of late 2017, one could be forgiven for thinking that Bitcoin has very little in common with how traditional assets behave and would be an alternate financial system. Yet it had a very troubled year in terms of prices, down almost 80% from peak high in December 2017. As an asset, with money flowing in from traditional investors, it is quite plausible that BTC prices rise and fall in accordance with gold, an established store of value.

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