Bitcoin and gold have shown impressive gains in 2023, defying traditional expectations amid geopolitical uncertainties and increasing interest rates. A recent report from asset manager Fidelity reveals a notable increase in the correlation between these two assets, challenging previous assumptions.
Decoupling of Bitcoin and gold from interest rates
Fidelity’s analysis suggests that in 2023, Bitcoin broke away from its historically inverse relationship with interest rates. Despite global rates surging, a situation typically associated with decreased demand for risk assets, Bitcoin held its ground and rallied. Gold exhibited a similar pattern.
Historically, Bitcoin and gold have not shown a strong correlation over the long term. However, in 2023, they displayed increased correlation, piqued investors’ interest.
In 2023, gold experienced significant price fluctuations but emerged robustly against various currencies. Against the United States dollar alone, gold’s price saw a notable 14.6% increase. Geopolitical risks and central bank demand were the primary driving forces behind gold’s performance.
Bitcoin’s impressive 156% gain in 2023
On the other hand, Bitcoin emerged as a clear winner in 2023, with a staggering gain of 156%. This remarkable surge has attracted considerable attention from investors and analysts alike.
Speculations on the correlation between Bitcoin and gold
Fidelity’s report speculates the reasons behind the increased correlation between Bitcoin and gold. One possibility cited is that investors may closely monitor the growing fiscal deficit in the United States. The anticipation of changes in interest rates is also considered a factor.
According to Fidelity, the correlation between Bitcoin and gold may indicate skepticism towards the bond market or signal anticipation of increased debt monetization by the Federal Reserve.
This perspective is based on research showing that Bitcoin’s price correlates more closely with inflation in the money supply and various liquidity metrics than with consumer price inflation.
Tighter supply environment for Bitcoin
Another noteworthy finding in Fidelity’s analysis is the tightening supply environment for Bitcoin. The report highlights that the number of long-term holders of Bitcoin reached an all-time high of 70% in 2023. These long-term and illiquid coins have remained unmoved even during significant price rallies, indicating strong conviction among holders.