Bitcoin decoupled from the stock market and saw its correlation with gold rise to a level not seen since last year.
Bitcoin (BTC) and gold are no longer investors’ top choices as a hedge against inflation amid a strengthening US dollar. The current turmoil in the financial markets, coupled with geopolitical tensions, has wreaked havoc on most of the assets that investors prefer to invest in during times of financial crisis.
Bitcoin has lost almost 70% of its market capitalization since last year’s market peak, while gold, which strengthened its position in the first quarter of the year despite the crisis between Russia and Ukraine, has currently lost 10 % so far this year.
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The negative market condition has forced BTC to shed its correlation with tech stocks while, at the same time, the major cryptocurrency’s correlation with the precious metal has reached levels not seen in over a year.
The correlation between Bitcoin and gold in the last year has fluctuated widely between -0.2 and positive 0.2. However, the correlation between both assets reached 0.3 last week, the highest in a year.
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A correlation reading of 0.3 is considered slightly positive, while a value of 0.7 is considered a strong correlation. Therefore, Although the BTC/gold pair’s correlation has reached a yearly high, it has yet to reach a significant level where price impulses mimic each other.
In addition to Bitcoin and gold, US Treasuries and other stocks have also faced a similar fate.. Experts believe that the strengthening of the dollar, coupled with current market conditions, has forced investors to look beyond haven assets.
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Karim Dandashy, portfolio manager at digital asset investment platform StableHouse, told Cointelegraph:
“Obviously it hasn’t been a great year for Bitcoin. It hasn’t been a great year for traditional risk assets like gold and bonds either. [bonos del Tesoro] Americans. The charts say it all, the dollar has been the winner. This is ironic, as investors would seek refuge in yield or growth assets, but recession risk and attempted QT have led investors to hoard dollars.”
Bitcoin may be struggling to keep up with the inflation hedging narrative, however, it is important to note that BTC is still a nascent asset class compared to others. Cryptocurrency remains one of the best performing assets in the last five years.
Clarification: The information and/or opinions expressed in this article do not necessarily represent the views or editorial line of Cointelegraph. The information set forth herein should not be taken as financial advice or investment recommendation. All investment and commercial movement involve risks and it is the responsibility of each person to do their due research before making an investment decision.
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