The price of the leading cryptocurrency became decoupled from its relationship with interest rates and gold followed the same pattern.
The correlation of Bitcoin with the gold increased in 2023, according to a recent report from asset manager Fidelity. The analysis showed how the price of the leading cryptocurrency became detached from its relationship with the interest rates, which usually causes a decrease in demand for risk assets. Gold followed the same pattern.
“We have seen a complete decoupling of this relationship as real rates continued to rise (with declining inflation and rtreasure deposits rapidly increasing at one of the fastest rates in history), with Bitcoin not only holding steady, but then going up! Could it be due to an idiosyncratic event, such as the anticipation of a spot ETF? Maybe. But we don’t think that’s the case, because gold has also shown similar behavior recently,” Fidelity explained.
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In 2023, gold experienced significant fluctuations but showed solid performance against several currencies overall. He gold price in dollars Americans increased 14.6% in 2023, with notable variations between different currency pairs. The asset’s performance was mainly driven by geopolitical risks and central bank demand. Meanwhile, Bitcoin gained 156% in 2023.
“Bitcoin has historically been relatively uncorrelated with gold over the long term, but has recently shown an increase in correlation as both have risen.”
Bitcoin and gold: the reason for the increase in correlation
The investment firm speculated on the reasons for the higher correlation between commodities, stating that investors could be watching the crecent US fiscal deficit or even anticipating a change in rates of interest:
“A possible explanation is thatI treat Bitcoin like goldThey suggest that the bond market may be wrong or that both assets are detecting something else, such as America’s structural and growing fiscal deficits. Perhaps the Bitcoin market is anticipating a increased debt monetization by the Federal Reserve in the future, or anticipating rate cuts, given that our research shows that the price of Bitcoin is highly correlated not with consumer price inflation, but rather with inflation in the money supply itself and various liquidity metrics.”
Fidelity’s analysis also points to a tighter supply environment for Bitcoin, as the number of long-term holders reached another all-time high of 70%. “It seems to us that the last few years of the bear market have forged very strong hands in terms of holding period. Even before a more than 160% increase in Bitcoin (at the time of writing in mid-December), we have not observed these long-term, illiquid currencies move in response to price for get benefits”.
Source: Ambito
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