Bitcoin and Gold Are Less Correlated Than Ever, and It's a Problem for Bitcoin

Bitcoin and gold are both booming in a global bull market that has seen Total World Indices soar a staggering 28% in the past 12 months. With both assets at or near all-time highs, many traders might understandably assume that they're correlated.

Bitcoin and gold are both enjoying a bull market, with Total World Indices up an impressive 28% over the last 12 months and both assets sitting at or near all-time highs. Many traders might assume that this means the two assets are correlated, but that's not the case.

In fact, gold and bitcoin are less correlated than ever before. While gold is at an all-time high, bitcoin is down 6% from its own all-time peak. Furthermore, a standard correlation measure of bitcoin to gold has fallen from over 50% four years ago to nearly 0 today.

If you look at a 90-day smoothed price chart of bitcoin and gold, you'll also see that the two assets are moving less in tandem than ever. Specifically, in October 2020, bitcoin’s average daily returns over rolling 90-day periods had a positive 50% correlation to the rolling 90-day returns of gold. However, bitcoin is now trading completely independently of gold, with its 90-day correlation to gold at just 0.04.

“Gold can’t achieve transaction finality without the help of a government or central party.” — @jackmallers calmly destroying Peter Schiff ? #Bitcoin

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Correlations can range from 1 — a perfect correlation where two assets always rally together — to -1, which is a perfectly negative correlation where two assets always trade in opposite directions.

Bitcoin’s 0.04 correlation to gold means that the average returns of gold have almost no impact on the average returns of bitcoin over a rolling three-month period. So, if bitcoin is "digital gold," as it's often called, it certainly hasn't been trading like it over the last 90 days.