Blockchain is yet to find its killer app, and Bitcoin is yet to find its true designation. There are loads of potential avenues for blockchain to discover while Bitocin still flitters between being a currency and a ‘digital gold’. However, recent socio-economic development and geopolitical tensions have suggested Bitcoin is heading in a certain direction.
In the latter stages of 2019, and early into the new year, there were instances that moved not only Bitcoin’s market price, but also that of gold. The precious metal is comfortably known as the best safe haven investment against the ups and downs of the general market and is often used as a hedge in times of financial uncertainty.
Now, Bitcoin’s correlation, which has always had tenuous links to gold, has reached a three year high following US-China trade war tensions, and the latest Iran flare up which resulted in the death of Iranian military commander Qasem Soleimani.
Gold on the up, Bitcoin follows suit
It would not be hard to predict that as the US and China began their tensions in 2019 that gold would be the one to profit. The metal gained in price as not only did the trade war threaten the value of the yuan, but also came at a time where the Federal Reserve was enacting policies to try and keep the economy afloat.
On that news, Bitcoin’s price action went into full flight and many high-profile commentators started to wonder if Bitcoin had matured enough to be considered a global hedge against financial uncertainty.
More recently, the attacks in Iran and on US bases saw the price of Bitcoin spike in time with Gold which again profited from the tensions. This has led to Arcane Research pointing out that that the correlation between the gold and the digital currency is at its highest point since 2016.
Their recent report put the 90-day Pearson correlation at 0.3, the highest since August 2016, when Bitcoin was trading at $600 and gold was valued at $1,330 per ounce. A closer look over the happenings in Iran mapped on the price graph of the two assets paints a clear picture.
Is Bitcoin showing its Golden credentials?
The face that Bitcoin is showing such a strong correlation to gold which is reacting as a hedge against uncertain times is good news for the coin, but also good news for an advancing and modernizing world.
It is unlikely that gold will be replaced by Bitcoin as a store of value and hedge in tough financial times, but the cryptocurrency does open the doors to be more inclusive. People looking to put their wealth away from traditional markets and currencies – such as the failing Venezeualna Bolivar – have easier access to Bitcoin than they do to Gold.