Exploring Bitcoins [BTC] increasing correlation to gold amid banking crisis

by James · April 4, 2023

Bitcoin’s correlation to gold hit a multi-year high of around 50%.
BTC’s relationship with the equity markets weakened amid a deepening banking crisis.

Bitcoins [BTC] the price movement has shown a strong resemblance to gold in recent weeks, reinforcing the sovereign’s long-supported narrative of being a safe haven.

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According to blockchain analytics firm Kaiko, BTC’s correlation to gold hit a multi-year high of around 50%. On the other hand, the correlation with US stocks fell significantly, exacerbated by the collapse of high-profile banking entities.

#Bitcoinits correlation with gold surpassed the correlation with the S&P 500 👀 pic.twitter.com/Kqp42KRcX5

— Kaiko (@KaikoData) 3 April 2023

“Digital Gold” is back!

For a long time, Bitcoin was positioned as a safe haven by supporters, i.e. an asset whose value is expected to remain stable or increase through economic downturns, somewhat along the lines of a bullion market.

However, during the bear market of 2022, BTC and Gold largely remained at a distance while the correlation between US units and crypto reached all-time highs, prompting critics to challenge the “Digital Gold” argument.

Source: Kaiko

But as is clear, the relationship with stock markets weakened amid a deepening banking crisis, prompting investors to dump bank stocks and explore crypto markets.

Consequently, prices surged and BTC recorded gains of nearly 24% during March, according to CoinMarketCap. Year-to-date (YTD), the largest crypto by market cap is up 65%.

The yellow metal also gained significantly in the previous month. Spot gold rose 9% since the collapse of Silicon Valley Bank (SVB) on March 8, as safe-haven assets attracted more investors.

Source: Trading View Gold Spot/USD

Increase in BTC’s volatility

Another interesting aspect of BTC’s departure from traditional stocks has been its increasing volatility. During the latter part of 2022, the coin’s volatility reached a record low and even dipped below stock indices such as the Nasdaq and the S&P 500.

However, with the beginning of the bull cycle in 2023, the price showed larger price swings in the vertical direction, attracting both bullish and bearish traders.

Source: Trading View; Bitcoin Historical Volatility Index

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Meanwhile, bullish sentiments for BTC strengthened as the number of coins held on exchanges continued to decline. Falling foreign exchange reserves are a strong indication of reduced sales pressure and increasing optimism in the market.

At the time of writing, BTC changed hands at $28,087.40, gaining 1.26% in 24 hours.