Key Points
- Bitcoin’s rival Gold continues to hit record highs, with a 25% increase year-to-date.
- Bitcoin’s price could potentially benefit from the macroeconomic conditions that are driving the gold rally.
Gold, also known as the yellow metal and a store-of-value rival to Bitcoin, has been reaching new record highs. It surged to $2,564 per ounce on Friday, marking a 25% increase since the start of the year.
In the third quarter, gold’s price rose by 10%, while Bitcoin’s price fell by 7% and is now around $58,000. Compared to the S&P 500, which only increased by 2% this quarter, gold has shown strong performance.
Bitcoin and Gold Divergence
Bitcoin is currently displaying volatility due to macro developments, such as fears of Yen carry trading unwinding and the potential for a US recession. Some analysts suggest that these unique factors are causing a divergence between Bitcoin and Gold. The recent gold price rally could indicate favorable macroeconomic conditions for Bitcoin in the near future.
Charlie Morris, the chief investment officer and founder of ByteTree, believes that the rise in gold is driven by increased central bank accumulation, a benefit Bitcoin has not yet seen. This trend could indicate potential monetary policy easing in the future.
Morris stated, “The appeal of government bond in reserves is lesser and gold has stepped up. Many central banks are accumulating gold, which used to be priced off U.S. Treasury inflation-protected securities but is now being influenced by global factors like structural government deficits. The strength in gold reflects increasing current and future [fiat] money supply, among other things, and bitcoin will rally when the economy picks up or when the sound of stimulus is heard.”
Money Flowing Back into Bitcoin?
The combined fiat money supply from the US, Eurozone, UK, and Japan turned positive by the end of August. With central banks planning to move towards liquidity easing, the money supply could continue to expand.
Last Thursday, the European Central Bank cut interest rates, and the Federal Reserve is expected to follow suit next week. This could signal the start of an easing cycle that could lead to increased stimulus for US investors.
André Dragosch, head of research in Europe at Bitwise, noted that gold’s recent rally suggests a sharp decline in inflation-adjusted US government bond yields. Historically, such a drop in real yields prompts investors to shift capital into riskier assets, such as bitcoin and technology stocks, as seen in 2020.
Dragosh stated, “Gold prices have completely decoupled from US real yields. This implies two things: Either gold is overpriced, or gold is already anticipating a massive decline in US real yields. A massive decline in US real yields is equivalent to a sharp easing in monetary policy, which is not yet priced more broadly into financial markets except in gold, which is why bitcoin and other assets might follow gold higher.”
Central banks have been buying gold in large quantities, purchasing 37 tonnes of Gold in July. This is the highest monthly purchase since January when the net purchase was 45 tonnes.
However, Alex Kruger, partner at digital assets and macro advisory firm Asgard Markets, warned investors not to overinterpret the implications of gold’s rally for Bitcoin.
