Gold correlates with Bitcoin amid a coronavirus outbreak.
Gold and Bitcoin are two assets that have nothing to do with each other on the surface and yet are often compared. A closer look reveals many similarities, such as scarcity, finite supply and so on.
According to a new report by VanEck Global, gold and Bitcoin are increasingly correlated amid the current coronavirus crisis.
“In the short term, the COVID-19 pandemic-induced market sale has increased bitcoin correlations with traditional asset classes – particularly gold, potentially suggesting bitcoin’s increasing value reserve status.”
The report goes on to explain that a small bitcoin allocation in a combined 60% / 40% stock portfolio significantly reduced the volatility of the defined portfolio during the recent market sale.
VanEck also argues that a product like a Bitcoin ETF “can have significantly reduced volatility for 60% equity / 40% portfolios”.
However, the company also concludes that the long-term correlation between bitcoin and gold remains low, but increases during the broad market sale induced by COVID-19.
Good or bad for Bitcoin?
Bitcoin has been touted as a store of value by many in the crypto universe. Although it recorded a 40% loss during the March 12-13 settlement, it can be argued that the bitcoin price has recovered, despite being completely unregulated and without safety nets, like government bailouts.
This notion has brought many comparisons between Bitcoin and gold, as the latter is known as a powerful hedge against the price of stocks, currencies and even other commodities.
In 2008, gold had its turning point and, at a certain moment, started to increase in value, unlike stocks that continued to decrease. Popular cryptocurrency analyst Willy Woo suggested that the decoupling of gold and bitcoin from the markets inherited during this crisis should have started.
On the other hand, there are experts who believe that in order to shine, Bitcoin needs to be totally unrelated to traditional markets, including gold.