News of U.S. President Donald Trump's infection with COVID-19 was quickly followed by a Bitcoin price drop. While the drop itself may be considered minor, with losses of around 1.5%, the gold spot price increased by 1% during the same time frame.
There are several potential reasons behind the short-term inverse correlation between Bitcoin and gold. Major factors include Bitcoin's weakened price momentum after news broke of CFTC charges against cryptocurrency exchange BitMEX, as well as Bitcoin’s correlation with stocks and the decreasing perception of Bitcoin as a niche market.
As the BTC Times reported, hours before Trump shared that he had contracted the virus, the U.S. Commodities and Futures Trading Commission (CFTC) and the Department of Justice (DoJ) charged BitMEX and its co-founders with violating U.S. anti-money laundering regulations and illegally operating a cryptocurrency derivatives trading platform.
Following the news, Bitcoin dropped by 4.1% within two hours across major exchanges.
Although the Bitcoin price declined after President Trump’s positive COVID-19 test, it remains higher than during the lowest point touched following the BitMEX-induced pullback.
Bitcoin was already demonstrating a weak price trend following the sharp 4.1% drop on October 1st. Hence, it has not declined substantially in the wake of the news surrounding Trump.
In recent months, particularly after the March 13th crash when Bitcoin dipped below $3,600, Bitcoin has seen a high correlation with the U.S. stock market.
Data from Skew shows Bitcoin and the S&P 500 have seen major cycles in which the two rallied and pulled back in tandem.
In the pre-market trading session, the Dow Jones slumped by 339 points, losing more than 1.2%. Coincidentally, Bitcoin fell 1.46% from the day’s peak.
However, the correlation between Bitcoin and stocks could be considered a positive sign. Kyle Davies, co-founder of Three Arrows Capital, said it shows Bitcoin is no longer a niche industry:
“Indications $BTC is not a niche cottage industry: 1) BTC has strong correlation with equities and commodities but you only trade crypto 2) LMAX is the largest BTCUSD spot exchange but you don’t have an account there 3) Trad billion $ entrants whom you have never heard of.”
Investors in the broader financial market might consider Bitcoin a risk-on asset for now, given its correlation with stocks. But for an unexpected piece of news that rattled the global stock market, Bitcoin has performed relatively well.