Fidelity Reports Increased Correlation between Bitcoin and Gold in 2023
Summary:
The analysis from asset management firm Fidelity signals an increased correlation between Bitcoin (BTC) and gold throughout 2023. Both commodities detached from their usual inverse relationship with interest rates and saw robust performance. Fidelity suggested that this might be due to investors’ concerns about the US's growing fiscal deficit or anticipation of changes in interest rates. It was also observed that Bitcoin's long-term holders reached an all-time high of 70% in 2023.
A current study conducted by asset management firm, Fidelity, suggests that the affiliation between Bitcoin (BTC) and gold has been tightening throughout 2023. As per Fidelity's evaluation, Bitcoin demonstrated a detached trajectory from its former inverse link to interest rates, even showing a surge in its value in the face of global rising rates, a scenario that usually deters demand for risky assets. It is worth noting that gold exhibited a similar pattern in the previous year: "Contrary to previous norms, this past year saw an uncoupling in this relationship, with real rates climbing (thanks to easing inflation and skyrocketing treasury yields), while Bitcoin remained stable and eventually rallied. This could potentially be due to singular occurrences such as the anticipation of a spot ETP. Given the recent similar shifts in gold, we doubt such speculations."In 2023, gold exhibited considerable volatility but overall it reflected a robust performance when compared with a host of various currencies. The performance of gold, in terms of U.S. dollars, shot up by 14.6% over the year, with significant variations witnessed among a range of currency pairs. Such asset performance was predominantly triggered by geopolitical uncertainties and demand stimulated through central banks. In comparison, Bitcoin marked a 156% uptick in growth for 2023. Fidelity observes that “While Bitcoin and gold have traditionally shown little correlation over a longer period, a recent vault in such a correlation is perceived as both have surged in their respective values”. In exploring the reasons behind the growing correlation of these commodities, Fidelity conjectures that investors may be drawing attention to the United States’ expanding fiscal deficit or possibly foreseeing a reduction in interest rate parameters."Our speculation can only extend to perceived messages being conveyed by these real asset markets; however, it is plausible that Bitcoin and gold are signifying an anomaly with bond market operations or sniffing out something entirely different, such as the burgeoning structural fiscal deficits of the United States. Perhaps the Bitcoin market is bracing for additional debt monetization by the Federal Reserve or is predicting interest rate slashes, especially given our research indicating a strong relationship between Bitcoin's price, not consumer inflation, but inflation in the money supply itself, along with a myriad of liquidity indicators." Fidelity’s insightful study also hints at a more constrained supply milieu for Bitcoin, with the quantum of long-term holders hitting a new record of 70%. “Our observation suggests that the bear market of recent years has wrought some resilient hands in terms of the holding period. Despite the bullish 160%+ rally in Bitcoin (as was reported in mid-December), there has been no movement of these long-term and illiquid coins in response to take profits." A local periodical reported that uncertainties and concerns harbored by lawmakers are driving the proposed crypto regulations in the US.
Published At
1/14/2024 12:14:59 AM
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