Recent rallies in Bitcoin and gold may be linked, according to a new analysis by Wolfe Research. The firm suggests that the Bitcoin rally, initially triggered by microeconomic factors at the end of 2023, has now merged with the more macroeconomic-driven gold rally.
Gold increased by 5.7% in March, accounting for a large part of the 6% gain it achieved in the last month. It reached record highs for four consecutive sessions last Friday. Similarly, Bitcoin traded at record levels this week, reaching all-time highs on both Tuesday and Friday. Bitcoin increased by 8% in March.
Bitcoin's positive price performance was initially based on demand expectations resulting from the approval of spot Bitcoin ETFs in the US and the price shock that BTC would experience immediately following the Bitcoin halving in late April.
“The positive factors for Bitcoin have been aligned over the past year,” said Stephanie Roth, chief economist at Wolfe.
“The stocks Bitcoin is associated with have performed well and the market has begun to price in an easier Fed.”
Roth believes the final catalyst for the Bitcoin rally is the launch of spot ETFs and the upcoming halving cycle. However, now BTC appears to be fueled by positive risk sentiment and loosening liquidity. These factors likely contribute to gold's recent strength, according to the analyst.
Gold is widely seen as a safe-haven asset and hedge against inflation, a statement many attribute to Bitcoin, also known as “digital gold.” However, Marion Laboure, a macro strategist at Deutsche Bank, notes that gold, like Bitcoin, does not always behave this way. “Core CPI fell 6.2% on average and the S&P 500 fell 11%, while gold fell 21% from March to November 2022,” the analyst said.
Deutsche Bank also cited increased liquidity as a reason why Bitcoin is reaching new highs this week, and analysts say it will continue to do so along with the launch of US spot Bitcoin ETFs, record fund inflows and the halving in April.
“As Treasury yields fall, more investors will likely seek higher-yielding alternative assets,” Laboure said.
“This influx of capital into non-traditional investment classes such as cryptocurrencies could further support the ongoing rise in digital currency prices.”
*This is not investment advice.