Bitcoin started its latest upward journey at the end of 2023, fueled by some pretty specific microeconomic factors. However, not long after, it seemed to catch the same wind pushing gold prices higher. In essence, both assets began their ascent on different paths but found common ground in broader economic trends.
Gold, for its part, didn’t hold back. In March alone, it jumped by 5.7%, accounting for the lion’s share of its 6% gain over the last month. And it wasn’t just any old rise; gold hit record highs four times in a row last week. Bitcoin wasn’t about to be left in the dust, either. It too hit new all-time highs, making notable leaps on Tuesday and Friday, and clocked an 8% increase in March.
What’s Fueling the Fire?
Initially, Bitcoin’s surge seemed to stem from the excitement around the U.S. approving spot bitcoin exchange-traded funds (ETFs) and the buzz about the cryptocurrency’s price ahead of the late-April bitcoin halving. But that’s not the whole story.
According to Stephanie Roth, the chief economist at Wolfe Research, there’s more at play. “Over the past year, several factors have lined up in Bitcoin’s favor,” she explains. The correlation with growth equities and the market’s anticipation of a more lenient Federal Reserve are among these contributing elements.
Roth believes that while the spot ETFs and the upcoming halving were significant, the rally now also thrives on a wave of positive risk sentiment and an influx of liquidity. Interestingly, these factors seem to be boosting gold’s appeal too. Gold is often viewed as a safe haven and a hedge against inflation, roles that many have assigned to Bitcoin as well, dubbing it “digital gold.”
However, Marion Laboure, a macro strategist at Deutsche Bank, points out that both assets can be unpredictable. She highlights a period in 2022 when gold dropped 21% despite high inflation rates and a declining S&P 500, suggesting that gold thrives on an easier Federal Reserve policy, influenced heavily by the dollar and real interest rates.
A Look Ahead
Deutsche Bank attributes the current Bitcoin boom to increased liquidity and the successful launch of U.S. spot Bitcoin ETFs, as well as record inflows and the expected April halving.
Laboure forecasts that when yields on traditional treasury assets fall, more investors will resort to higher-yielding, unconventional assets, such as cryptocurrencies. This shift could give fuel to the present boom in digital currency prices.
The Bottom Line
As we traverse these intriguing times, gold and Bitcoin appear to be on the same wave, propelled by broader macroeconomic issues and a need for alternatives to traditional assets. It remains to be seen if these trends will continue, but for the time being, both assets are basking in the spotlight.
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