The supposed safe-haven assets, which were fiercely contested during the quarter, were flooded with negative news such as inflation reports, Elon Musk’s FUD, and an unexpectedly restrictive tone (in support of the government). Reserve (Fed).

Gold outperforms Bitcoin in the second quarter of 2021

An ounce of gold has risen from $ 1,707.45 on April 1st to currently over $ 1,750, representing a quarterly gain of around 3.9%. Meanwhile, Bitcoin has fallen more than 40% to below $ 35,000 after hitting an all-time high (ATH) near $ 65,000 in mid-April over the same period.

The negative correlation between Bitcoin and the gold market rose particularly in April and May 2021. Analysts at JPMorgan noted in May that large institutional investors have rotated their capital.

Referring to bitcoin futures data on the Chicago Mercantile Exchange (CME), JPMorgan analysts said investors have been liquidating their positions since October 2020. Meanwhile, the inflows into Gold Exchange Traded Funds (ETFs) have increased proportionally to the outflows of the Bitcoin market.

An excerpt from the report reads:

“The picture of Bitcoin flows continues to deteriorate, suggesting that institutional investors are continuing to withdraw. Last month, the Bitcoin futures market saw its strongest and most sustained liquidation since the Bitcoin bull run that began last October. “

Bitcoin and gold are moving in almost opposite directions in the first two months of the second quarter | Source: TradingView.com

JPMorgan noted that institutional investors may have viewed Bitcoin as an overbought asset, especially as it rose from $ 3,858 in March 2020 to $ 65,000 in April 2021 – an increase of 1,584 percent. Meanwhile, gold pegged its ATH at $ 2,075.82 an ounce in August 2020 and then fell to $ 1,676,866 in March.

War in the safe haven

Bitcoin’s alternative investment strategy to gold has also regained momentum after Elon Musk criticized the cryptocurrency for its zero carbon footprint in mining and refused to accept BTC payments for its Tesla electric car line.

On May 19, shortly after Musk announced it would ask Tesla to sell all of its $ 1.5 billion holdings of Bitcoin, the price 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 monthly candle 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 safer haven over Bitcoin amid fears of higher inflation. As a result, gold rose 3.78% in April while US consumer prices rose 4.2% – the best level in more than a decade. In May, gold saw the consumer price index rise by a similar 5%.

The core consumer spending index (PCE), the Fed’s preferred inflation indicator, rose in May at an annual rate of 3.4%, its highest level in 29 years.

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.

Damn June

June was the only month in the second quarter when Bitcoin and gold are trending at the same time.

Bitcoin and gold correlated positively in June | Source: TradingView.com

Bitcoin and gold traded steadily in the days leading up to the Federal Reserve’s two-day policy meeting in the second week of June. Fed officials announced that by the end of 2023, a year earlier than expected, they could hike rates twice to curb excessive inflation.

Both Bitcoin and gold fell at the same time after the Fed’s restrictive tone. Gold, in particular, has had a worthwhile monthly performance in June since 2016. At the time of going to press, it’s 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 on the central bank officials’ dot chart.

Economists expect interest rates to be 50 basis points higher in December 2023 | Source: Financial Times

Carsten Fritsch, an analyst at Commerzbank AG, recommends keeping an eye on the US dollar to gauge the strength of gold in the upcoming sessions, noting that the greatest resistance to gold will come in June when the greenback strengthens .

The US Dollar Index (DXY), a benchmark used to measure the strength of the dollar against a basket of leading fiat currencies, rose to a weekly high of 92.433 on Wednesday June 30th.

DXY hits a weekly high as gold falls | Source: TradingView.com

Fritsch told Bloomberg:

“Gold has consistently failed to break the 100-day moving average in the past few days, which is a bearish sign. There is a risk that previously patient ETF investors have jumped into the swing and sold their holdings. This will increase the downward movement. “

At the same time, Bitcoin bulls received similar warnings as they repeatedly grappled with the risk of falling below $ 30,000, a level of psychological support.

Jill Carlson, a joint venture partner

of 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 cryptocurrency.

Predicting another decline for Bitcoin, Clem Chambers, CEO of financial analyst portal ADFVN.com, has determined that a break below $ 30,000 will pave the way towards $ 20,000.

– A venture partner is someone who a VC company places on its board of directors to make and manage investments, but is not a full and permanent member of the partnership.

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