We often come across articles about correlation between Bitcoin, Gold, and the Traditional Equities markets. Some analysts believe Bitcoin is correlated with gold, some analysts believe Bitcoin is correlated with stock markets, some analysts even believe Bitcoin is not correlated at all.
I personally tend to believe, it depends on the market sentiments, and the timeframe. Sometimes it may be correlated, sometimes it may not be correlated! I would of course personally not call anyone wrong, as each analyst has his/her own way of analysis.
Let's see what is going on in the market today!
Here's a brief article I covered a few days back about correlation between Bitcoin, gold and the equities market. Do have a look, for reference!
Here's a brief disclaimer:
I'm not a certified financial advisor, and even though I've been trading for quite a few years, I urge people reading this, and my other posts to #DYOR (Do your own research) before taking any decisions!
Of course I'm going to help you out if you have some queries/doubts, so feel free to let me know in the comments, or on twitter :)
Bitcoin returns, volatility and correlation characteristics are distinctively different, as compared to Gold and the US dollar.
Sentiments have been strong on both Bitcoin, and Gold, with Gold breaking the all time high this week, and closing the monthly with an impressive bullish candle, and with Bitcoin breaking out of the multi year downtrend, with a solid candle. (more explained later).
Surprisingly, we are even seeing a good inflow of capital in equities market as well, as we look at the indices of various stock markets, to see an impressive V shaped reversal (though we should'nt still be convinced that it's actually a recovery)
A lot of the recent price action in equities can be related with the various stimulus packages, plunge protection teams, and liquidity injections by government/central bank initiatives.
Right now there's word out that a Second stimulus check, Designed to spur spending, can be implemented soon
If that happens, we may even see new all time highs in stocks, and more rally on Gold and Silver, primarily because, we are also seeing a lot of people, stuck in their home, who are exploring various financial markets, and are trying to make the best use of their stimulus cheques.
Another factor we must consider is the possibility of a negative interest rates.
More Brrrrr? Where are our Brrrr friends? :P
Anyway, let's now have a look at the charts!
Below are two charts, on smaller timeframes, one for Bitcoin, one for Gold.
Chart: BTC/USD, 1H
link: https://www.tradingview.com/x/apu7Svw8/
Chart: XAU/USD, 1H
Link: https://www.tradingview.com/x/waPeyucy/
Notice the striking similarities now? :)
Both the assets are now consolidating in a Bullish Ascending Triangle Pattern
Probability is high that both of them may break out soon, but it's a small timeframe.
On longer term price actions, Bitcoin price action is much more volatile, and may not be correlated.
Let's have a look at the weekly breakouts, mentioned at the beginning of the article.
Here's the breakout on Gold on the weekly:
Chart: XAU/USD, 1W.
https://www.tradingview.com/x/pIoKffBw/
If you followed my previous article I posted about 2 weeks back about Gold, you must have seen that the price action went as expected, and the precious yellow metal managed to break above the 2011 resistance, completely invalidating any bearish cases. :)
Here's the breakout on Bitcoin:
Chart: BTC/USD, 1W
link: https://www.tradingview.com/x/HXewSzoa/
Note:
- I'm not implying that Bitcoin and Gold are correlated on the the weekly, but both broke out of major resistances almost at the same time :)
- Bitcoin still needs to reclaim the previous All time high ($20k), and break above it, so I'll still feel that it is lagging behind Gold in this aspect.
- The most important point: Am I comparing Bitcoin to Gold? Ans: NO!
Another important factor to consider here: The Dollar index!
Chart: DXY, 1W
Link: https://www.tradingview.com/x/OfloYAFv/
Point to note:
- We have broken the downtrend, which signifies a weakening Dollar.
- Though it won't be correct to say that it "Must have a negative correlation", we can assume that a weakening currency usually leads to a rise of hard safe haven assets, especially Gold and Silver.
So, a positive correlation between price of Bitcoin and Gold will be good for bitcoin, overall.
For detailed reading, about dollar index and equities correlation, I'd recommend you to have a look at an article by Investopedia.
Bonus: If you want to take the trade, you can consider the following R:R, an may assess your risk appetite and enter.
Chart: BTC/USD, 1W
link: https://www.tradingview.com/x/KtEqLkSV/
Targets are based on the previous CME gaps on daily. :)
So, DYOR. We need to see price action around that zone before holding on to the trade or exiting from it.
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