Investors are fleeing gold and bitcoins
Investors have recently been fleeing gold as inflation has risen, favoring cryptocurrencies. They were ditching the metal, long considered a store of value, to buy digital assets that were introduced a little over a decade ago.
However, over the past year, the US stock market has suffered big changes and has grown by more than 30%. At the same time, government debt also increased. All this led to surges in many markets and a crisis. This also affected investments, which is why many Investors are fleeing gold and bitcoins. It is necessary to understand the issue in more detail and consider the situation in the market.
Gold and bitcoin correlation
While gold is on guard and has fallen about 6% since mid-February, Bitcoin may continue to shine brightly in the near future. However, before that, we should expect a fall in the bitcoin rate in the near future. But even so, experts found an inverse correlation between the two assets.
The correlation coefficient between bitcoin and gold, a statistical measure of the linear relationship between two variables, is now at a very low level. This signals an inverse relationship, meaning that the two variables are moving in opposite directions, which is exactly what has been happening with bitcoin and gold over the past few years.
In addition, the situation in the British debt market had an indirect impact on the strengthening of the correlation. First, it showed a jump in the yield of 30-year government bonds to the highest level of 5% in the last 20 years. And then there was a downturn as the Bank of England launched an interim round of its asset purchase program.
It should be noted that correlation does not imply causation. That is, when there is a strong correlation between two variables, it does not necessarily mean that one of the variables causes movement or affects the other variable.
Bitcoin Shattered Investor Confidence in 2022
Bitcoin was launched in 2009, while gold has been trading for several millennia. Cryptocurrency aficionados argue that its usefulness as a hedge against inflation is due to its limited supply, with a maximum supply of 21 million digital coins. This is in stark contrast to the money-printing measures central banks are taking to combat the effects of the pandemic.
But bitcoin’s recent attempt to exit the bear market failed amid a liquidity crunch that has hit crypto exchange FTX. The flagship virtual asset has corrected to almost a two-year low.
Experts suggest that against the backdrop of all the events described, Bitcoin will soon be trading at $12,000. Note that many cryptocurrency investors believe that now is the best time to buy digital assets, since the bearish trend allows you to buy cryptocurrencies cheaper so that later trade transactions can bring considerable profits.
Also, against the backdrop of the cryptocurrency market crisis, large mining companies are selling cryptocurrency mining rigs – in this way they hope to recover losses due to the fall in the value of digital assets.
Probably, bitcoin will continue its fall and in the near future its value will be able to drop to 12 thousand dollars. Among the reasons for such fluctuations in the cryptocurrency market, the expert calls FTX problems that undermined investor confidence – the cryptocurrency market should continue to expect a “serious liquidity crisis.”
In general, since the beginning of the year, the cryptocurrency market has lost almost $ 1 trillion in market capitalization under the pressure of a number of factors (increasing inflation around the world and the war in Ukraine), culminating in a series of bankruptcies involving crypto hedge funds and creditors, as well as the reduction in the activities of some large companies.
In 2022, the bitcoin exchange rate has repeatedly changed – it rose, then fell. Now the situation with this asset remains unclear and some investors believe that the fate of cryptocurrencies may change.
The history of the value of gold in 2022
Uncertainty in the markets causes a fall in prices for risky assets. As evidenced by the crises of the past two years, if stock and bond prices fall, the value of gold usually rises along with demand.
Since the beginning of the year, global stocks have fallen by about 9%, and bond markets have lost about 5% in price. The yellow precious metal, on the contrary, shows an increase in quotations. At the end of February 2022, the price of gold in euros increased by 6%, and since the beginning of the year – by almost 10%.
Since the beginning of the military conflict in Ukraine, gold has risen in price to a maximum over the past 8 months. Quotes at auction on February 18, 2022 jumped to $1,900 per ounce. The last time such figures were observed on the market a little less than a year ago. On the day of the Russian invasion of Ukraine, February 24, 2022, gold rose in price from $1,910 to $1,975 per ounce, and already on March 1, 2022, futures were trading within $1,943.
On the morning of March 25, the price of gold futures on the New York Comex exchange rose by $0.2 to $1962 per ounce. The metal is supported by investors’ fears for the global economy against the backdrop of sanctions against the Russian Federation. An additional impetus is given by the information that the leaders of the G7 agreed to stop any transactions with gold with the participation of the Russian central bank.
Experts are now predicting that the fate of the metal will change if inflation continues. The short history of bitcoin and other cryptocurrencies, as well as their volatility, is also taken into account, which reduces the reliability of assets. For example, John Hathaway of Sprott Asset Management noted that:
“If my assumptions come true, I think gold will skyrocket.” In his opinion, the Federal Reserve will have to move to a more decisive tightening of monetary policy, and this will lead to the collapse of bitcoin and the growth of gold.
It remains only to follow the bitcoin gold news and where it will lead.
Results of 2022
Even in the most unquiet times, gold remains valuable. This is also proved by our new wartime reality. In extreme conditions in the markets, gold remains one of the most reliable insurance against inflation. Against the backdrop of increasing geopolitical risks, the yellow metal is firmly holding a high position in the market as a safe haven for savings.
According to the indicators of DotBig Forex broker, today the demand for physical gold (bars) from investors is growing from everywhere: from Vienna and Singapore to New York. Buying the yellow metal is mainly driven by the fear of inflation and a new global crisis. Experts do not exclude that gold can reach new highs.
What’s going on with bitcoin?
Most recently, the value of the main cryptocurrency dropped below $20,000 per coin for the first time since October 25. On the night of November 8, all major cryptocurrencies simultaneously lost in price. For example, bitcoin, which until recently was trading at about $22,000, collapsed to $19,300 at the moment. But despite this, the DotBig trader platform still recommends not to rush to sell the asset.
What’s going on with gold?
While cryptocurrencies are crashing, gold is gradually rising in price. Very soon this asset will be able to reach new heights. And DotBig will help you keep track of the changes.
Where is the best place to invest now?
At the moment, the best asset for investment is gold and other precious metals. So far, this is the only reliable asset that is really worth investing in, according to many experts, including representatives of the DotBig company.