The Link Between Bitcoin and Gold

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特邀专栏作者

2020-01-13 15:52 (UTC+8)

This article is about 2488 words, reading the full article takes about 4 minutes

What is the connection between Bitcoin, gold and crude oil? What about their price movements?

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What is the connection between Bitcoin, gold and crude oil? What about their price movements?

Nonsense

It has been more than ten years since Bitcoin was created, but it is difficult for cryptocurrency enthusiasts, investors, and regulators to reach a consensus on the classification of Bitcoin. Bitcoin is often compared to a currency, a commodity, an investment asset, and some even argue that it has no underlying value. However, from the perspective of most regulators, bitcoin is regarded as a commodity, it is related to gold, and it is often compared to "new gold" or "digital gold".

Gold hit a six-year high this week as tensions between the U.S. and Iran escalated, while bitcoin rose nearly 20 percent. As a result, analysts are trying to reassess the short- and long-term price movements of Bitcoin and commodities and other traditional assets to see to what extent they are correlated.

From the price trend of Bitcoin and gold from April 2013 to the present, it can be seen that gold reached its price high in 2020, while Bitcoin reached its high at the end of 2017. So what is the connection between them?

By calculating the correlation between gold and bitcoin prices in the overall sample (from April 2013 to December 2019), it is found that the correlation between bitcoin and gold is quite high, reaching 46.5% (0% is not Correlation, 100% is a perfect positive correlation, and -100% is a perfect negative correlation).

Interestingly, when comparing the price correlation between Bitcoin and gold in 2018 and 2019, we found that the price correlation increased from 60.3% in 2018 to 70.8% in 2019.

Based on the above results, we hypothesize that as the cryptocurrency market continues to mature, the price trend of Bitcoin begins to resemble that of traditional assets. Additionally, there are similarities in the correlation between the lagged prices of gold and Bitcoin.

Gold futures prices and volatility have also risen over the past week as gold prices soared to an all-time high of $1,606 an ounce. Meanwhile, the price of bitcoin surged above $8,300, its highest price since November 2019.

In addition, on January 8 this year, Bitcoin’s daily trading volume reached its highest level (over $28 billion) since the crash on December 18, 19. Judging from the Bitcoin volatility premium provided by Coinmarketcap, January 3 and January 8 this year were the highest since December 18 last year.

Bitcoin’s daily transaction volume for the past 7 days.

Bitcoin volatility premium over the past 7 days.

Looking at the correlation of prices alone, investors might conclude that there is a correlation between gold and Bitcoin. However, these data alone are not sufficient to draw this conclusion.

Compared with the correlation between Bitcoin and gold prices, the correlation between the returns of the two assets is much weaker, with only a 2.2% correlation in the overall sample. The correlation between the returns of the two assets increased from 8.7% in 2018 to 12.5% in 2019, an increase.

Between 2018 and 2019, there was a similar shift in the lagged return correlation of the two assets. Based on the correlation of -2.3% for the overall sample, -4.7% in 2018 and positive 2.3% in 2019, we can assume that there is no correlation between the returns of Bitcoin and gold.

Let’s see if Bitcoin’s return can be explained by a regression model of gold’s return. By analyzing the return sample, when gold rose by 1%, Bitcoin rose by 0.115%.

However, the above results are not statistically significant, that is, it is impossible to confirm whether there is a correlation between the two assets. When regressing the lagged returns of Bitcoin and gold, there is a negative correlation between them, and this negative correlation is also not statistically significant. Through the above analysis, we can assume that changes in the price of gold will not have an impact on the price of Bitcoin.

People have always compared Bitcoin to commodities, but when Bitcoin is compared to crude oil, some of Bitcoin's fundamental assumptions (fixed supply and high volatility) make people wonder whether it is a commodity.

Amid the latest conflict between the U.S. and Iran, WTI crude oil prices rose 2.86% between Jan. 2 and Jan. 7, while Brent crude oil prices rose 3.9%. Crude oil futures prices also rose.

Analyzing the data from April 2013 to December 2019 shows that there is a negative correlation (-13.5%) between the price of crude oil (WTI) and Bitcoin. Contrary to previous findings, the correlation between crude oil and Bitcoin prices has been decreasing from 2018 to 2019, from 22% in 2018 to -3.7% in 2019.

Investment returns on Bitcoin and crude oil are also negatively correlated, at -2.5% for the overall sample and -3% in 2019. The correlation in 2018 was better than in other periods (1.8%).

Let's look at the correlation between the lagged returns of WTI crude oil and Bitcoin, which is negative in 2018 and 2019, and the correlation of the overall sample is 3%, which is higher than the correlation between Bitcoin and gold returns.

By analyzing the regression model of WTI crude oil returns, we also have no significant results to prove that crude oil returns can predict Bitcoin returns. Both the normal and lagged returns of bitcoin to crude oil have negative coefficients, while the normal returns to gold are positive, suggesting the exact opposite relationship between crude oil and bitcoin.

The classification of Bitcoin is still an open question. In the short term, Bitcoin has performed similarly to commodities such as gold and crude oil during a week of high geopolitical instability. Traditional stock indexes, such as the S&P 500 and Dow Jones, have done the opposite.

The data above shows that over a broader time period, Bitcoin has a weak correlation with gold and even less with crude oil.

In the long run, considering the example used in Figure 6, Bitcoin still offers investors a better investment option than investing in gold or crude oil. A December report from Cointelegraph showed that over the past 10 years, Bitcoin’s price has risen by nearly 9 million, outpacing all other investments.

However, the factors that affect Bitcoin's price and earnings are not definitive. At the same time, in times of economic uncertainty, more and more traders may view Bitcoin as an asset that is not correlated with traditional stock indexes, as the US-Iran tensions showed last week. a safe-haven asset. Cointelegraph previously reported that some mainstream media outlets have come to believe that Bitcoin is a politically neutral asset.

Last week, the Nikkei Asian Review mentioned when talking about US-Iran relations:

With no risk of state intervention or geopolitics, cryptocurrencies have become 'digital gold' amid escalating tensions in Iran.

If Bitcoin is adopted by more and more individuals and businesses in the future, it will show an increasingly negative correlation with traditional markets and commodities. Whether this evolution brings bitcoin closer to a commodity, a currency, a purely speculative asset, or an entirely new asset class remains to be seen.

If you want to invest in Bitcoin but haven't found an effective profit method, or you have stockpiled spot but don't know how to use contracts to hedge risks, or you like Nakamoto Curry's humor, welcome to communicate.

Don't worry about having no confidants on the road ahead, but there are friends on the investment road. I am Nakamoto Curry (BTC6668888), and I am willing to stand with you through thick and thin!

Yesterday, the BTC contract fluctuated in a range of up and down 100 dollars around 8100 points, and the price remained relatively high. It is expected to still fluctuate in this range today. In terms of operation, you can use high altitudes and low multiples in the light storage range, strictly stop losses, and wait for the market to give a direction choice.