Bitcoin’s (BTC) classification has been a controversial and difficult topic for crypto-enthusiasts, investors, and regulators to reach a consensus on. The digital asset has been compared to a currency, a commodity, an investment asset or even said to have no underlying value. However, from the perspective of regulators, Bitcoin has been mostly associated and studied as a commodity, especially in relation to gold. In fact, many times Bitcoin is referred to as the “new gold” or “digital gold.”
This week, as tensions between the United States and Iran ramped up, gold reached a 6-year high while BTC price rose about 20%. Thus, analysts are attempting to re-evaluate to what extent commodities and other traditional assets are linked to Bitcoin’s long and short-term price action.
Looking at the price action of Bitcoin and gold from April 2013 until now, one can see that gold reached its peak in 2020, while Bitcoin reached its maximum price in late 2017. But how are they related?
When computing the correlations for the entire sample (from April 2013 until December 2019), between gold and Bitcoin prices, the data showed that they are considerably correlated at 46.5%, with 0% being not correlated, 100% meaning it’s fully positively correlated and -100% meaning it’s fully inversely correlated.
Interestingly, when comparing the correlation of prices between 2018 and 2019, we can confirm that the correlation of prices increases from 60.3% in 2018 to 70.8% in 2019.
This raises the scenario that as crypto markets mature, the price action begins to resemble that of traditional assets. The correlations between lagged gold prices and Bitcoin prices also show similarities.