[Crypto News] Is there a correlation between gold and bitcoin?

There is a theory lately that the price of bitcoin is correlated to gold

There is a similarity between the two in the minds of crypto-enthusiasts, who see bitcoin as digital gold, in that it is equally scarce, having a finite amount that will ever be in circulation, namely 21 million. Also they both need to be “mined” at cost and effort and are not easy to obtain. One cannot simply print more gold or bitcoin like one can with fiat currency.

Therefore they are both considered deflationary, whereas fiat is inflationary and will always lose its value over time as more and more is printed.

However

The actual evidence for a direct correlation between bitcoin and gold is debatable. The research firm Excalibur Pro Inc has provided stats to show that currently bitcoin has traded at a 0.84 correlation to gold, where -1 indicates no correlation, or a complete inversion, and +1 shows a perfect correlation. So 0.84 seems awfully close to a perfect correlation. However, this is only over the past few days, and may be merely due to big investors entering the market just now via OTC (over the counter) channels.

Large institutional investment in bitcoin

Such as that from VC (Venture Capital) went from around $96 million in 2013 to $500 million in 2016, and then to over $2 billion by the end of 2017. Improved regulatory compliance, futures trading, as well as ETFs have spurred on this increase over the years. All the progress made with bitcoin’s compliance and acceptance, particularly the upcoming launch of Bakkt by the parent company of the NYSE, known as ICE, as well as investment giant Fidelity’s move into digital currencies, has really helped bitcoin’s status among big investors, bringing it into the mainstream. Even the topmost colleges in America, Yale, Sanford and Harvard Universities have officially invested. Perhaps they are all seeing bitcoin as the new gold when it comes to investment.

However, the volatility in bitcoin’s price still needs to be considered

The price of gold, on the other hand, hasn’t actually changed by more than $700 per ounce for the past eight years, despite them both sharing a similar purpose as a hedge against global insecurity regarding fiat currency. Where gold has numerous practical industrial and cosmetic use cases besides a store of value, bitcoin is very new on the economic scene and is far less useful or regulated at present than gold, which gives the precious metal a definite advantage. On the other hand bitcoin is far more transportable than gold.

You will have a hard time moving any large amount of gold across borders

Or carrying it around in your pocket, whereas you can move any amount of bitcoin in minutes to anyone anywhere, and you can carry all your bitcoin on you in your trezor or ledger, regardless of how much. You can also divide it up into a fraction of an amount to trade as a fungible asset, whereas gold is less flexible or mutable.

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Gold has been labelled “God’s money”

In that it comes from nature and cannot be manmade at all. Fiat is, of course, government money. But bitcoin is, on the other hand, “people’s money”, an asset of value to empower the people of the earth, whoever they may be, regardless of their government or ability to afford the asset, as in gold’s case. These are just some of the differences in the assets that clearly show no real correlation. In fact, usually when cryptocurrency decreases, gold has a tendency to increase in value.

When crypto one day stabilises in price, it too might be seen as an equal store of value to gold as a safe haven. The increased volatility it simply too risky for investors at present.

So where some see a correlation in the price of gold and bitcoin

Others may merely see a coincidence. There was even a correlation between bitcoin and the VIX (CBOE volatility index) at the same time recently too, for what it’s worth. There is no way as yet to know if there is a new trend arising in the price correlation between the physical and digital “gold” today.

Let’s watch this space a little longer before we can say for sure.

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