Author: Think macro man
Gold prices performed badly in November, but at the same time Bitcoin prices hit new highs. This divergence has destroyed the rising price correlation between the two since the US dollar was released.
Nowadays, Bitcoin is being continuously pushed up by headlines from various institutions, while gold funds are suffering from capital outflows. Some people in the industry speculate that investment funds are flowing from gold to Bitcoin, and Bitcoin’s “digital gold” nickname may be further realized.
However, in the long run, the correlation between Bitcoin and gold will be restored, after all, they will all benefit from the depreciation of the dollar driven by currency release.
Related ETFs:
Bitcoin-Grayscale Bitcoin Trust (GBTC);
Gold-SPDR Gold Shares (GLD);
Gold mining stocks – VanEck Vectors Gold Miners ETF (GDX);
Last month, the digital currency news website AMBCrypto wrote: When the first Bitcoin halving ended in 2012, the correlation between Bitcoin and gold prices was 2%; when the second halving ended in 2016, the relationship between Bitcoin and gold The correlation is about 11%; after the end of the third halving cycle in 2020, the correlation between Bitcoin and gold has jumped to 43%, and Bitcoin has been hailed as “digital gold” by more and more market participants.
However, as the stock market rebounded higher in November, Bitcoin and gold began to decouple, which runs counter to the general trend of increasing correlation between the two in the past 10 years. This week, Bitcoin has approached the $20,000 mark for the first time since 2017, but at the same time, the price of gold has plummeted to a low of nearly four months.
What is driving Bitcoin’s decoupling from gold?
Part of the reason for the decline of gold is that Sansishe has mentioned in the previous article (Figure 1), and the rise of Bitcoin may be related to the upsurge that it has set off in the institutional circle since October.
figure 1:
On October 21, the global digital payment platform PayPal announced that it would allow users to buy, sell and hold digital currencies such as Bitcoin through its online wallet. This news stimulated Bitcoin’s rise by 8%.
After the news was released, the Bitcoin market attracted more influx of funds. The market’s hottest Bitcoin investment trust Grayscale (GBTC) has a significant expansion in its circulation share (Figure 2). Its management scale has risen from less than US$75 million at the beginning of its establishment to more than US$10 billion now. At the same time, CME Group (CME ) The size of open positions in Bitcoin futures also climbed to nearly $1 billion.
Figure 2: Market price and circulation share of Bitcoin Trust Gray (GBTC) (blue line)
In addition to PayPal’s heavy news, heavy news from various top institutions has played a role in boosting the price of Bitcoin.
Last week, Guggenheim, the leading asset management company in the United States, disclosed in a regulatory filing that its Macro Opportunities Fund invested 10% of its net asset value in GBTC. According to estimates, the position adjusted value About 530 million US dollars.
JPMorgan Chase’s latest research report proposes that GBTC’s 100-fold rise shows that Bitcoin is not only sought after by young retail investors, but also promoted by institutional investors such as family offices and asset management companies.
Bitcoin news website CoinTelegraph reported that Fidelity Fund surveyed nearly 800 institutional investors, 36% of the surveyed institutions already hold cryptocurrency assets, and 90% of these institutions that already hold cryptocurrency are expected to invest in Bitcoin next year. To make more investments.
According to CoinShares investment analysts, the market value of Bitcoin is currently only 3.1% of gold. If this ratio is increased to 5%, the price of Bitcoin will rise from US$18,700 to US$31,300.
In stark contrast: hot Bitcoin, coldly received gold
US Commodity Futures Trading Commission (CFTC) data show that in the five trading days as of last Tuesday, COMEX gold futures speculative long positions decreased by 7.9%, and short positions increased by 9.2%.
During the period when Bitcoin prices soared, the gold ETF market experienced the largest capital outflow in the past few years (Figure 3). JPMorgan Chase found that since November 6, funds backed by physical gold have sold 93 tons of precious metals worth about $5 billion.
Figure 3: Bitcoin price (black line) and net inflow of gold ETF funds (gray bar)
Two weeks ago, a video interviewed by Rick Rieder, the chief investment officer of the fixed income division of the global asset management giant BlackRock, was popular on the Internet. He believes that the attractiveness of cryptocurrencies such as Bitcoin will continue to exist, and this is largely due to the more powerful functions of cryptocurrencies. He said: “Do I think Bitcoin will replace gold to a large extent? Yes, Bitcoin is much more powerful than a gold bar.”
BlackRock CEO Larry Fink followed Reid’s optimism this week and pointed out that cryptocurrency may evolve into a “global market.” BlackRock already holds Bitcoin exposure through MicroStrategy (BlackRock holds 15.24% of shares). In August and September of this year, MicroStrategy invested a total of US$425 million in Bitcoin (the total market value of MicroStrategy was not more than US$1.5 billion at the time), which became the target of pegging the price trend of Bitcoin, and it has been widely speculated recently.
MicroStrategy is a business intelligence, mobile software and cloud service company, and one of IBM’s competitors. After a huge bet on Bitcoin, the interview video of the company’s CEO Michael Saylor also attracted widespread attention. Saylor said that MicroStrategy’s purchase of Bitcoin is a response to current economic uncertainty, and Bitcoin is digital gold, which is stronger, faster, and smarter than any currency before it. As the price of Bitcoin has skyrocketed since October, MicroStrategy’s stock price has also doubled in a month.
The dollar’s downturn will prevent Bitcoin from decoupling gold
Both Bitcoin and gold have a certain degree of hedge risk and inflation value, and both benefit from the uncertainty of the global economy, central bank monetary easing and the decline of the US dollar.
Liquidity in the former economy has been flooding. Since the end of February, M1 in the United States has increased by $1.8 trillion, an increase of 45%. In addition, the Federal Reserve is still maintaining a monthly purchase of US$80 billion in US debt, which means that the depreciation of the US dollar is expected to continue at least until the end of the year. The day before yesterday, the US Congress also announced that the two parties are expected to reach a new version of the rescue plan with a scale of 908 billion US dollars, which stimulated the US dollar index to fall below 91.
The Fed has promised to maintain interest rates at zero until 2023. With the introduction of the second round of fiscal stimulus, it is foreseeable that high inflation (or rising inflation expectations) will depress real interest rates in the United States.
The core factors that determine global capital flows are short-term interest rates and the spread between currencies. As the real interest rate of the US dollar falls into a negative value in the foreseeable future, both gold and Bitcoin will become more attractive than the US dollar.
For those investors who question whether inflation can really pick up in the next few years, you can look at commodity prices. Copper prices are currently at an eight-year high and oil prices are beginning to rise. As financial markets begin to set prices for the global economic recovery, commodities are benefiting from the positive progress made by the new crown vaccine.
In short, under this trend, gold and Bitcoin are not competitors. Bitcoin’s stronger performance in the last month may be the hot money chased by news headlines.
In the long run, the correlation between Bitcoin and gold will recover. After all, they all have similar efficacy attributes, and both benefit from the depreciation of the dollar driven by monetary stimulus.
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