Bitcoin’s correlation with gold is at its highest in six years as investors increasingly look for ways to hedge against currency debasement.
That’s according to a new report from Bitwise, which this week pointed out that the precious metal and leading cryptocurrency are trading in lockstep because the U.S. government has “materially intervened in the macro picture.”
Bitcoin started surging last month, after the U.S. Treasury Department said it would more than double the size of its government debt repurchases. The coin had its best run in three years and third best August ever.
“The last time the bitcoin-gold correlation was that high was in 2020, following the rounds of fiscal and monetary stimulus during the Covid crisis,” Bitwise’s European Head of Research, André Dragosch, wrote.
He added that bitcoin’s correlation with the stock market dropped to a one-year low, “implying some kind of decoupling between hard assets and the stock market.”
Bitcoin has been pushed as “digital gold” for years but has sometimes traded with tech stocks as a “risk-on” asset.
But the so-called debasement trade — when investors buy an asset as a way to hedge against a currency losing value — was a much-talked about investment strategy last year and appears to be back.
The reason is down to the government intervening in markets, Dragosch argued. When the Treasury said it would try to rein in long-term borrowing costs, the dollar’s value slid and sent investors flooding back to gold — and bitcoin.
The Treasury the same week also said the U.S. public debt exceeded $40 trillion for the first time. Excessive debt also undermines confidence in the dollar.
“Investors are no longer asking whether to hedge currency debasement with gold or bitcoin. They’re simply hedging with both,” the report added.
“Bitcoin spent its first fifteen years being priced as a risk asset. If this correlation trend with gold holds, the next fifteen may look very different.”
The leading cryptocurrency again rallied this week, and was recently trading for close to $81,438 after jumping nearly 6% over a 24-hour period.