Gold outperformed Bitcoin in the second quarter, even after seeing its worst month since 2016
Gold is set to outperform Bitcoin (BTC) in the second quarter of 2021.
An ounce of gold rose from $ 1,707.45 on April 1st to over $ 1,750 on June 30th. That is an increase of around 3.9% for the quarter. Meanwhile, Bitcoin has dropped more than 40% to below $ 35,000 after hitting nearly $ 65,000 in mid-April, all over the same period.
The negative correlation between Bitcoin and the gold market was particularly strong in April and May 2021. JPMorgan analysts found in May that large institutional investors had siphoned their money from overvalued crypto markets in search of gold bars.
Referring to bitcoin futures data on the Chicago Mercantile Exchange (CME), JPMorgan analysts said investors have been liquidating their positions since October 2020. Meanwhile, inflows into exchange-traded funds that back gold have increased in proportion to bitcoin inflows into the market. An excerpt from the report reads:
“The picture of Bitcoin outflows continues to deteriorate, suggesting that institutional investors are continuing to withdraw. Last month, the Bitcoin futures market saw its strongest and most sustained liquidity since the Bitcoin bull run that began last October. “
The bank noted that institutional investors may have viewed Bitcoin as an overbought asset, especially as the flagship cryptocurrency rose from $ 3,858 in March 2020 to just $ 65,000 in April 2021 – an increase of 1.584%. Meanwhile, gold peaked at $ 2,075.82 an ounce in August 2020 and then fell to $ 1,676,866 an ounce in March.
War in the safe haven
The bitcoin-to-gold alternative investment strategy has also gained momentum again after Elon Musk criticized the cryptocurrency for its carbon footprint in such a way that he suspended its acceptance as a payment for electric vehicles.
On May 19, shortly after Musk doubled its attack on the Bitcoin market and announced that it would likely ask Tesla to dump all of its $ 1.5 billion BTC, Bitcoin fell about 30%. The downward trend also intensified after China announced a complete ban on crypto activities, including mining-related activities, which contribute a large part of the network’s total computing power.
Bitcoin closed the trading session in May with a loss of 35.5%. Gold, on the other hand, benefited from FUD in the crypto market, rising 7.6% in the same month.
Investors have chosen gold as a safe haven over Bitcoin because they fear higher inflation is imminent. As a result, the precious metal rose 3.78% in April, while US consumer prices rose 4.2%, their best level in more than a decade. In the following month – as described above – the gold price rose further, while the consumer price index rallied similarly to 5%.
Core PCE, the Federal Reserve’s preferred index for measuring inflation, rose to a 29-year high at an annualized rate of 3.4% in May.
Jerome Powell, chairman of the Federal Reserve, persisted in rising inflation as he described the price hike as “temporary.” He further stressed that the central bank will maintain its expansive fiscal programs to protect the US economy from the economic consequences of the coronavirus pandemic.
The Fed has kept interest rates near zero and has been buying government bonds and mortgage-backed securities worth $ 120 billion every month since March 2020.
June appeared to be the only month in the second quarter that bitcoin and gold are trending at the same time.
Assets were stable in the days leading up to the two-day policy meeting of the Federal Reserve’s Open Markets Committee in the second week of June. Fed officials said they would hike rates twice by the end of 2023, a year earlier than expected, to contain excessive inflation.
Both Bitcoin and gold fell at the same time after the Fed’s restrictive tone. Gold in particular looked at the prospect of seeing its worthwhile monthly performance since 2016 in June. At the time of going to press it was down 7.42%.
Meanwhile, Bitcoin has fallen more than 8.5% over the same period.
What’s next for Bitcoin and Gold?
A survey of top economists conducted by the Financial Times found that the majority of them expect the Fed to hike rates at least twice by the end of 2023, which is exactly in line with central banks’ scoring plans.
Carsten Fritsch, analyst at Commerzbank AG, recommends keeping an eye on the US dollar in order to assess the strength of gold in the coming sessions, as the greatest resistance to the precious metal will be stronger in June due to the dollar.
The US dollar index, a benchmark that measures the strength of the dollar against a basket of leading fiat currencies, rose to a weekly high of 92.433 on Wednesday.
“Gold has consistently failed to break above the 100-day moving average in the past few days, which is a bearish sign,” Fritsch told Bloomberg. “There is now a risk that ETF investors have patiently jumped into the swing and sold their holdings. This will increase the downward movement. “
At the same time, Bitcoin bulls received similar warnings as the cryptocurrency repeatedly struggled with the risk of falling below $ 30,000, a level of psychological support.
Jill Carlson, a venture partner at Slow Ventures, told CNBC that institutional outflows from the Bitcoin market have been gaining momentum recently, adding that traders need to be “cautiously bullish” on cryptocurrencies.
Clem Chambers, CEO of financial analyst portal ADFVN.com, has predicted another decline for Bitcoin, noting that a break below $ 30,000 will push the cryptocurrency on its way towards $ 20,000.