Lift off: Bitcoin-Gold Correlation Reaches Yearly High!

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Hi everyone,

Bitcoin’s narrative had its fair share of tinkering over the years, but as with every new ground-breaking technology, attempts to box it into familiar precepts often fail.

In this edition, we’ll take a closer look at the increasing bitcoin-gold correlation and its significance as well as the technical bitcoin data, which appears to have turned a corner over the last few days.

Bitcoin-Gold realised correlation reaches yearly high

As recently reported on our blog, the bitcoin-gold correlation continues to reach new highs, corroborating numerous data points which suggest that a bitcoin trend shift away from stocks is underway.

According to fresh data from Skew, the realised correlation between bitcoin and gold just tapped a one-year high.

While throughout March to July, bitcoin was more closely correlated with the S&P 500 and the US stock market, the strengthening correlation between gold and bitcoin speaks to an ongoing perceptual shift among investors.

This would also inform a changing dynamic in fund manager’s ‘risk-on’ association with bitcoin.

Given the global macro-economic situation that openly admits to being propped up by central bank money printing policies, the gold narrative has gained significant momentum as it trades close to all-time highs. Hedges against inflation has also garnered significant attention as investment firms and hedge funds understand the probable consequences of infinite free money.

The narrative is further corroborated with prior macro-economic cycles. Indeed, taking only one example, it only took three years for the Weimar Republic’s currency to succumb to hyperinflationary pressures due to central bank policies and political instability. While such an outcome is probably not going to happen tomorrow, the US-dollar standard is much closer to the end of this economic super-cycle, making way for the bitcoin standard — powered through distributed public consensus.

Gold has historically served as a safe-haven asset and is the go-to store of value to combat inflation. Since Federal Reserve chair Jerome Powell’s speech at Jackson Hole, Wyoming, the demand for safe-haven assets has only grown. As a consequence, gold has consistently risen and outperformed many assets this year, and will likely continue to do so for the foreseeable future given the set of facts at hand.

As with all things, technology advancements tend to supercharge trends, and bitcoin is no different in this regard. In effect, bitcoin’s remarkable nature as absolute digital scarcity has culminated in a positive bitcoin-gold correlation, which becomes more apparent with each day. The trend is further complemented by the noticeable improvement in institutional sentiment around bitcoin as a ‘store of value’ and a ‘hedge’ against currency debasement.

At the risk of sounding overzealous, to my mind, it’s fair to say that those who still talk down bitcoin are either disingenuous or enthusiastically demonstrating the total brain power of an amoeba.

Technically speaking

Bitcoin weekly maintains bullish momentum

Bitcoin’s macro situation continues to dictate the medium-to-long-term trend, which is bullish by any measure. In fact, bitcoin has just marked the 189th day of this price reversal trend since black Thursday in March and shows little signs of stopping.

During the run, the 20-weekly EMA has three times acted as major support, with the last confirmation being printed just last week. Provided bulls seize the opportunity and the odds, it’s unlikely for bearish arguments to meaningfully impact the weekly trajectory given the information currently available.

The next hurdle for bulls on the weekly chart is the 2019 high at $13,800, after which it’s entirely conceivable that a rapid build-up in momentum would shoot the number one crypto to $20,000 within days, where the last real resistance levels lie in wait.

Of course, bitcoin could retreat further within this burgeoning bullish market structure. Such a scenario would require bitcoin to collapse below the 20-weekly EMA, which would inform a prolonged correction possibly towards the lower $9,000 level (marking a .382 fib retracement since March).

Currently, this scenario seems less likely but must be considered nonetheless.

Daily finds resistance at $11,000

Per Wednesday’s newsletter, bitcoin found resistance at the $11,000-$11,200 levels after having reclaimed the mid $10k-trading area.

While a welcomed sight, this price action has by no means put bitcoin bulls back in the driver’s seat. As yet, price has undergone a standard .618 fib retracement since the initial breakdown on September 3rd.

As such, bearish continuation or another retest of $10,000 is well within the cards and should be within the mental corridors of every trader and investor out there.

From a speculative and crystal-ball-like point of view, there are a number of scenarios that could play out which would meaningfully impact bitcoin’s eventual move towards $12,000 and higher.

If bitcoin were to get rejected at the .618 fib, then a possible ‘double bottom’ scenario could play out — respecting both the upward-trending support and the 20-weekly EMA. Otherwise, a Bitmex liquidation event could grind bitcoin towards the .786 fib level at around $11,500, which would inform an imminent follow-up move towards higher levels.

Briefly, the next levels to watch are as such:

$10,500 resistance-turned support
$10,000 20-weekly EMA support
$11,000 daily close for confirmation of bias flip
$11,500–700 for a possible rejection

It goes without saying that the market doesn’t have to respect any of these levels. Ultimately, we’re attempting to contextualize price movements based on technical indicators, historical precedent, and several other data points that inform the odds and nothing else.

Furthermore, these movements have no bearing on the macro situation for bitcoin, which is playing out at its own pace as we speak. As with all things bitcoin, events tend to happen slowly, and then suddenly.

One day soon, a few thousand dollar increments will be commonplace and buying bitcoin at $20,000 will be considered a bargain.

May your gains be high and your losses low.

Catch you next time.

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