Recently, bitcoin took a nasty dive of approximately $600 despite being on the verge of crossing the $12K threshold.
Bitcoin Dives, and Gold Does the Same
As late as Monday, the world’s number one digital currency by market cap was trading for over $11,900, meaning it was just a few dollars away from breaking present resistance and moving even further up the financial ladder. Sadly, this wasn’t meant to be as the asset ultimately drove itself back to the $11,300 mark just 24 hours later.
Bitcoin spent much of Tuesday trading within that range, though now it has shot up to approximately $11,500. While this isn’t where it stood on Monday, the currency is still about $200 higher than its previous position.
The moves incurred by bitcoin are suddenly making sense when one looks at gold. The precious metal – which has been the object of every wealthy person’s obsession since the 1850s – had spiked to an all-time high as of late and was on the verge of striking the $2,100 position. It was well above $2,000 per ounce and appeared poised for bigger and better things during the spread of the coronavirus pandemic.
However, the asset suddenly turned and fled back into bearish territory, falling below the $1,900 line and trading back at where it was in early July, marking its biggest single day drop in approximately seven years. Today, however, the metal has surged back above the $1,900 position, meaning the asset is well on its way towards recovery.
Craig Erlam – senior market analyst at OANDA Europe – explained the reasoning behind gold’s strange and erratic behavior as of late, stating:
The rise in US yields delivered a sledgehammer blow to precious metal markets on Tuesday, with gold falling five percent and silver taking a massive 15 percent hit. The rally over the summer has come as US real yields have gone negative and continued to decline, so the sudden spike over the last couple of days triggered a rush for the exits in what has become an incredibly overcrowded trade.
Furthermore, what’s not being mentioned here is the fact that bitcoin is suddenly beginning to mimic the aura of gold. In other words, the precious metal is widely considered a system of wealth storage and a “safe haven,” and bitcoin is beginning to take on similar shape in many people’s eyes.
Following in Each Other’s Footsteps
Thus, it makes sense that bitcoin – which has widely been correlated with stocks – is now beginning an entirely new correlation phase with gold. When the precious metal goes up, bitcoin appears to follow, and when the asset drops, the digital currency isn’t far behind.
Ever since the coronavirus took hold in mid-March, bitcoin’s reputation has expanded, and people are beginning to see it as a potential tool that can hedge one’s wealth against inflation and other harsh economic conditions.