All across the globe, central bank money printers are spewing out cash at an unprecedented rate, highlighting society’s dire need for so-called “hard assets” like Bitcoin and gold.
Fear of imminent inflation resulting from this flurry of fiat printing is driving investor demand for scarce assets through the roof and is likely the primary source of the upwards momentum seen in both gold and Bitcoin in recent months.
Data supports this notion, and analysts at Bloomberg anticipate Bitcoin to continue rallying higher as its correlation to gold strengthens.
In the time since the market-wide meltdown that took place in early March, Bitcoin has been breaking its correlation to the U.S. equities market and forging a closer relationship to gold.
Data from the analytics platform Skew shows that the one-month realized correlation between BTC and gold is currently sitting at over 67%. This marks a striking rise from its average correlation of 11.9% seen throughout the past 12 months.
Concurrently, the benchmark cryptocurrency has also formed an inverse correlation to the value of the U.S. Dollar (USD).
As seen below, Bitcoin’s inverted chart reveals that its price has been climbing as the value of USD against foreign currencies declines.
This bolsters the notion that investors are turning towards alternative forms of sound -money in order to escape the unrelenting inflation faced by the dollar and other fiat currencies
According to Mike McGlone – a Senior Commodity Strategist at Bloomberg – Bitcoin’s status as a hard asset is driving a buying frenzy that has resulted in its strong multi-week uptrend.
In a report from July, McGlone explained that the current economy is providing an ideal backdrop for “quasi-currencies” like Bitcoin and gold to experience organic growth.
Bitcoin is becoming more like gold in an increasingly favorable macroeconomic environment for the quasi-currencies, and we believe it will continue outperforming most peers.”
It appears that demand for the digital asset is going mainstream as well. McGlone explains that demand for the Grayscale Bitcoin Trust (GBTC) through traditional brokerages is an “indication of increasing demand” similar to that seen by gold ETFs in recent weeks.
In order for Bitcoin to become widely accepted as a “digital gold,” it will need to maintain its inverse correlation to the USD over a macro time frame.