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Bitcoin, Gold Gain as Fed Prints "Infinite Amount of Cash"

Investors are seeing Bitcoin and gold as safe havens as the Federal Reserve injects trillions into the economy

Bitcoin Gold Correleation Real or Imaginary

Key Takeaways

  • Investors are flying to cash as well as safe haven assets in the face of market turmoil.
  • Gold is up more than 11% since last week while Bitcoin shows an impressive 25% recovery.
  • Bitcoin and gold have seen a strong, and growing, correlation throughout the month of March.

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Market turmoil has investors rushing to safe havens. While gold stole the spotlight with a sharp rebound, Bitcoin’s correlation to the precious metal is making the case that it’s the next up-and-coming hedge asset.

Investors Rush to Safety

The ongoing global pandemic has wreaked havoc on the financial markets, including the cryptocurrency industry. To protect their capital from adverse market conditions, a significant number of investors appear to be flying to cash and other safe assets. For example, data from Coin Metrics reveals that stablecoins transfer value is on the rise amidst the economic turmoil.

On March 13, for instance, the aggregated transfer of all stablecoins reached a new all-time high of nearly $450 million.

Stablecoins Transfer Value by Coin Metrics
Stablecoins Transfer Value by Coin Metrics

Along the same lines, gold has seen its price rise significantly over the past week due to the collapse in global stock prices and many currencies.

On Monday, the precious metal surged over 4% after the Federal Reserve announced that it is preparing to unload an “infinite amount of cash” to support “smooth market functioning.” Gold recently gained another 4% climbing to $1,640 as Goldman Sachs told its clients that it is time to buy the “currency of last resort.”

“We have long argued that gold is the currency of last resort, acting as a hedge against currency debasement when policymakers act to accommodate shocks such as the one being experienced now,” said Jeffrey Currie, head of commodities at Goldman Sachs.

The growing demand for the precious alloy has caused a shortage of gold bars and coins. A recent report reveals that Europe’s largest gold refineries have struggled to keep up due to the lockdown that several countries in the region have implemented.

“It’s basically impossible to buy physical gold in a retail capacity today. Even bullion-style jewelry in places like Menē is sold out,” said Nick Carter, founding partner at Castle Island Ventures.

Indeed, the gap between paper and physical gold is so extreme that the London Bullion Market Association was obligated to ask CME Group to change gold delivery rules to avoid disruption of trading.

Bitcoin as a Safe Haven Asset

Although gold has stolen the spotlight lately, Bitcoin does not fall far from the tree. The flagship cryptocurrency and the precious metal have seen a strong correlation since the beginning of the month, according to The TIE.

The crypto data provider maintains that these two assets have displayed a correlation coefficient of 0.72 throughout the month of March.

Bitcoin and Gold Futures Correlation by The TIE
Bitcoin and Gold Futures Correlation by The TIE

On-chain analyst Willy Woo believes that the price action of these so-called safe haven assets resembles what happened during the 2008 banking crisis. During that time, gold and most stocks sold off in tandem before the precious metal decoupled and rebounded sharply later that year.

Now, Woo believes that the decoupling of hedging assets from traditional markets may have begun and the amount of incoming fiscal and monetary stimulus could help them reach higher highs.

“Seeking the decoupling… Here’s where we are in the timeline compared to the 2008 banking crisis. Decoupling of safe havens from equities showing hints it may have begun (i.e. when BTC and Gold go bullish). We’ll have more confirmation in a week,” said Woo.

Flight to Safety Chart by Willy Woo
Flight to Safety chart by Willy Woo

Time will tell whether or not gold, as well as its digital counterpart, Bitcoin, will act like they did in 2008. When governments and central banks around the world turn on the printers at full speed, something has to give.

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