Bitcoin’s Value Association Resembling Gold More Than Its Altcoin Offspring: LongHash Data
The amount of times that Bitcoin has been referred to as the new kind of store of value, and ‘Digital Gold' has increased in the last few years alone. And it's a reputation that it has managed to cultivate thanks to the kind of politically agnostic state of monetary policy as well as transactions.
For the longest time, Gold has served as a store of value and hedge against economic uncertainty as well as the government's general inadequacy when it comes to the supply of money it's entrusted with, Bitcoin operates as a way for investors to jump out of the more conventional fiat currency world while also side-stepping otherwise overbearing financial hypocrisy and oversight, especially as money itself becomes an increasingly digitalized medium of exchange.
Even with this in mind, with Bitcoin being likened to gold, their price activity demonstrates one of the ways in which Bitcoin doesn't match up with it. Specifically, this is because the two assets don't tend to move in tandem. If we take a look at some of the metrics over the last few years, we see that there has been no correlation between the two over the past few years.
The emphasis here should be on past performance, however, as this is something that is starting to chance – with more correlation occuring between gold and Bitcoin over this year in terms of prices. Meanwhile, the underlying correlation that Bitcoin had to Altcoins has been steadily decreasing.
Getting to the Bottom of the Data
Going into Coin Metrics data, it typically measures the level of correlation on a scale ranging from -1 – which illustrates that two variables being tracked have an inverse correlation; meaning they work in opposing directions. 0 would mean that there is zero correlation between the two at all, while a score of 1 means that these two assets are performing in near perfect correlation.
This kind of measuring in correlation by these increments is more commonly referred to as Spearman's rank correlation co-efficient.
Taking a closer look at some of the metrics on an annual basis and across the months, we see that this major correlation between Bitcoin and Gold, and the steadily receding one between Altcoins and BTC began back in April. With some of these changes being more prominently seen with the following figures:
- Ethereum: 0.91451 to 0.73607
- Bitcoin Cash: 0.82189 to 0.72571
- Litecoin: 0.80934 to 0.61724
- Gold: 0.07508 to 0.22846
So what does this mean, exactly? The latter point being that there's been a steady increase to the kind of correlation between Bitcoin and Gold. But even with that said, it has only moved from what we'd refer to as ‘very weak' to a ‘weak' correlation point.
And even though we are seeing the trend of increased correlation with gold at the expense of Altcoins, the latter still holds a particular hegemony, only sliding from a ‘very strong' correlation to a ‘strong' rating.
It's important to understand as well that, over the early point of this year, Bitcoin reached an all time high in correlation with altcoins. It's this particular correlation that only weakened with the recent rise in the value of Bitcoin between April 1st and July.
Alongside this recent bullish trend in Bitcoin causing a partial drop-off of altcoin correlation (to be somewhat expected as investors pull out of Alts and back into BTC), Gold also underwent its own rally due to the ongoing trade disputes and ‘currency wars' going on in the world of forex trading.
During the Bitcoin 2019 conference, which took place in late-June, a considerable number of advocates and speakers illustrated the ongoing international trading and macroeconomic issues, such as the ballooning level of government debt being accrued and held by governments across the world. This dovetails with the continuing ‘loose' monetary policies. These conspire to bring more people to both Gold and Bitcoin as viable alternatives to weather the looming storm.
Once we combine this with the expected halving of Bitcoin rewards for miners, which is expected next year, this would provide a meteoric rise for the price of BTC.
Long term, it makes far more sense for both Bitcoin and Gold to undergo a greater degree of correlation due to the current international and investment circumstances. And, at the very least, demonstrates that there's a little bit more to the Bitcoin as ‘Digital Gold' meme than previously expected.
Over the last few months, we have seen some greater level of indication that Bitcoin is being more commonly regarded and used as a digital alternative to holding Gold.
In more federal and regulatory circles, this has included some statements made by the Chairman of the US Federal Reserve, Jerome Powell. The chairman had publically compared Bitcoin to Gold during a testimony relating to Facebook's Libra Cryptocurrency during the Senate Banking Committee this week.
So where is the latest destination for Bitcoin? There are those more bullish about it that believe that it's market cap is destined to disrupt the hegemony of Gold, by matching its cap of more than 7 trillion dollars. Along with this, investors like Blockchain Capital's Spencer Bogart explained that the bullish case for Bitcoin is one that has the potential to go far beyond the gold market.