(Kitco News) – As global economic conditions worsen and concerns about the U.S. federal debt mount, traders are increasingly shunning Bitcoin (BTC) as a store of value and hedge against inflation in favor of gold, according to Mike McGlone, Senior Commodity Strategist at Bloomberg Intelligence.
“Bitcoin lagging gold despite the record-setting S&P 500 may augur headwinds for risk assets,” McGlone said in a report released Wednesday. “At 24 ounces of the metal equal to the crypto on Oct. 22, the Bitcoin/gold ratio is below a high of 34 in March and a 2021 peak of 37, with a big difference – the S&P 500 remains relatively elevated.”
“Our graphic shows the close connection between beta getting stretched vs. its 100-week moving average and Bitcoin rising vs. gold,” he noted. “The declining Bitcoin/gold ratio may be signaling risk-asset reversion, or that the crypto is ripe to catch up.”
“Our bias is with the former, notably due to what pumped Bitcoin to a new high in 1Q – the long-awaited launch of US ETFs and a halving of crypto supply,” McGlone said. “The US election is a wildcard. Gold may face a headwind if Vice President Kamala Harris wins the presidency and Republicans take Congress.”
Looking specifically at the relationship between BTC and copper to the S&P, McGlone noted that “The highest ever 60-day Bitcoin-to-S&P-500 correlation in a rising market, and a similar copper trajectory, could suggest an inordinate burden on beta to keep rising. Stand-alone technical patterns are increasing for the risk-asset and economic-leading indicators, but Bitcoin and copper are leaning lower vs. beta.”
He highlighted that “The propensity for correlations to gravitate toward 1-to-1 when beta declines may be what lagging Bitcoin is sniffing out,” noting that “At 0.57 to Oct. 22, the 60-day crypto-to-S&P 500 relationship has never been greater on the way up.”
“Bitcoin has trailed beta for about three years, which begs the question of whether the crypto is ripe to hop back on its fastest-horse-in-the-race mantra or if it's signaling a peak risk-asset bubble,” he said. “The US election is a wild card, and with the stock-market cap to GDP at 2.1 vs. 1.3 in November 2016 and US Treasury bond yields rising despite Federal Reserve easing, the next president could face some normal risk-asset reversion.”
“The highly speculative digital asset may be at a disadvantage vs. record-setting gold – Bitcoin's annual volatility is about 3x greater,” McGlone said. “Copper appears similarly subject to beta. The recent high at 0.59 was the highest 60-day correlation between copper and S&P 500 since 2020, which may portend a top risk to base metals.”
“There could be an inordinate burden on beta to keep going up, or the metal said to have a Ph.D in economics faces normal reversion,” McGlone warned. “Normal is emphasized, as that's what copper's been doing since first trading at $4 a pound in 2006.”
“Our graphic of the metal and S&P 500 on the same scale shows the close connection until decoupling in 2Q23,” he added. “It makes sense for copper to underperform rapidly rising beta with China in decline, but will the metal catch up?”
McGlone said their “bias is risks are tilting downward for copper, especially with futures speculators 25% net-long of open interest, which may be leaning too hard to the optimistic side of the macroeconomic boat.”
And while the cryptocurrency ecosystem is well known for having a large cadre of Bitcoin maximalists, there are also traders who understand the value of diversification into gold, and the rising trend of tokenization has helped crypto natives gain exposure to the yellow metal at an increasing pace, allowing them to enjoy the crypto-like gains the precious metal has enjoyed in 2024.
According to data provided by Arkham Intelligence, the on-chain analytics firm has discovered one wallet holding over $250 million in Tether Gold (XAUt), equivalent to approximately three tons of the precious metal.
“A wallet holding over $250M in Tether Gold has been predicted by the Arkham AI as belonging to RhinoFi,” the firm wrote on X. “In real-world terms, this is equivalent to almost 3 TONS of Gold. Since the Gold was transferred in, its value has increased by $90 MILLION dollars.”
