Bitcoin’s status as a safe haven almost became invalidated as the crypto-asset moved in lockstep with the United States equities in recent weeks. However, a new report by United States investment firm VanEck, reveals that bitcoin’s correlation to gold has significantly increased in 2020 due to the recent coronavirus-driven market downturn.
The increased correlation to the precious metal suggests that bitcoin is gradually becoming the next up-and-coming safe-haven asset.
Bitcoin’s Increasing Correlation To Gold An Indication Of Its Growing Safe-Haven Potential
Gabor Gurbacs, the digital asset strategist at VanEck published a new report on April 3, 2020, in which he examined bitcoin’s (BTC) correlation to the yellow metal so far this year. Gurbacs noted that the correlation has significantly increased in 2020 due to the COVID-19 pandemic.
Although gold was clearly the most preferred safe-haven asset during the market’s most recent pinnacle of bloodshed in mid-March, bitcoin did not fall far from the tree. Gurbacs observed that a small BTC allocation to a portfolio with 60% in equity and 40% in bonds went a long way to reducing the volatility of the 60-40 assorted portfolio.
After examining recent data, Gurbacs realized that bitcoin’s correlation to traditional markets started to surge after the market-wide sell-off. But what’s even more interesting is the fact that BTC’s correlation to gold has reached “levels never seen before”.
Over the past two weeks, bitcoin’s correlation to gold stood at 0.47 while that of BTC and the S&P 500 was -0.25. Year-to-date, BTC’s correlation with the precious alloy is 0.42. With the S&P 500, it is noticeably lower at 0.13.
In conclusion, Gurbacs opined that bitcoin’s correlation to gold and other conventional assets like US bonds and the S&P 500 remains low in the long-term. In the short-term, however, the increased correlation with gold implies that bitcoin is slowly grabbing a proverbial piece of the safe-haven pie.
Moreover, another recent report by Binance Research found that although bitcoin showed a positive correlation to the US stock market in the first quarter of 2020, this is just temporal. In the medium or long term, bitcoin is likely to uncouple from the equities.
If the decoupling is successful, BTC could emerge as the ideal safe-haven asset bitcoin enthusiasts have long been clamoring for.