Bitcoin to Gold Correlation Surges Amid Banking Turmoil, Surpasses Stocks

Research from blockchain analytics firm Kaiko shows that Bitcoin’s correlation to gold soared to its highest level in over a year in March. 

The newfound correlation has occurred amidst a falling correlation to the stock market, indicating that Bitcoin may be drifting toward risk-off asset status. 

Bitcoin As Digital Gold

Per Kaiko’s report, the correlation between Bitcoin and gold now stands at 50%. Meanwhile, its stock market correlation stands at roughly 20%, having been on the decline since December. 

“It’s a significant shift because over the course of 2022 Bitcoin and gold were mostly uncorrelated,” Kaiko analyst Dessislava Aubert told Decrypt. “So, it was not moving as a safe haven [asset] at all.”

Bitcoin bulls have often likened Bitcoin to “digital gold,” even hypothesizing that it could replace the precious metal as a safe haven monetary instrument of the 21st century. Like gold, Bitcoin is reliably scarce, divisible, and pure, but comes with added benefits of digitization that make it an effective form of money. 

For a long time, however, the theory failed to live up to reality. Bitcoin and crypto correlated heavily with the stock market throughout last year, often well above 50%,  as risk assets cratered in the face of tightening interest rates from central banks worldwide. 

At the same time, correlations between Bitcoin and gold frequently ran at 0% or negative. This occurred as annual inflation clocked multiple 40-year highs – a phenomenon that Bitcoin and gold are theoretically meant to fight against. 

Panic in the Banking Sector

Things changed in mid-March when Bitcoin rallied to $28,000 and gold rose just shy of $2000/oz after banking fears ripped through the United States. After Silicon Valley Bank and Signature Bank were jointly closed, the Federal Reserve agreed to backstop all depositors and add hundreds of billions of dollars in liquidity back into the banking system to prevent further bank runs. 

Indeed, deposit outflows from banks recently registered their 9th straight weekly decline, with large banks experiencing $129 billion in outflows last week – the largest weekly figure ever. 

Last week, Bloomberg analyst Mike McGlone predicted that gold might be able to break past its all-time resistance of $2000 if banking crises continue. Instability has already spread into Europe, where Credit Suiise has been bought out by UBS after a bank run, and even Deutsche Bank experienced a brief demand spike in the cost of its default insurance. 

Similarly, Bitcoin bulls are excited that macro conditions have aligned to reignite the asset’s next bull market. BitMEX co-founder Arthur Hayes wrote an essay on the matter last month, arguing that the Federal Reserve’s Bank Term Funding Program will pump a similar amount of money into the economy as did Covid relief, and will have a similar positive impact on stocks and crypto in the process. 

Former Coinbase CTO Balaji Srinivasan has gone as far as to stake $2 million on Bitcoin’s price reaching $1 million in less than 3 months as hyperinflation ensues. However, even Bitcoin Standard author Saifedean Ammous – who argued in his book that Bitcoin is superior to gold as money – doubts that this prediction will manifest.