Bitcoin may begin to present a more attractive alternative to both the USD and gold in the eyes of investors. The crypto is currently enjoying a stronger negative correlation with the dollar than gold.
Since the massacre on Black Thursday, Bitcoin has become a better hedge against USD than gold. Concurrently, its correlation with the S&P 500 Index reached unexpected highs.
Since the breaking of the Bretton Woods system in 1971, traders and investors have considered gold to be the best hedge against fiat. Over the years, gold has constantly shown a negative correlation with the dollar with some quite rare exceptions. On the flip side, Bitcoin and the dollar have been highly uncorrelated with each other until a few months ago.
Nonetheless, beginning from the Black Thursday crash that happened in March, Bitcoin has shown a stronger negative correlation with the dollar than gold. The original twist came about due to Bitcoin losing almost 50% of its value and the dollar’s appreciation. At that time, the investors were fleeing to quality.
Market Discounts US Government
The roles reversed soon enough. Bitcoin strongly made up the losses that it had suffered in the March meltdown while the dollar has since depreciated against its main fiat rivals and gold. The market has so far discounted the U.S. government’s handling of the coronavirus pandemic.
Increasingly high mortality rates, almost 50 million Americans unemployed, and unexpected and unplanned multi-trillion dollar stimulus packages have decreased confidence in the country’s economy in the eyes of the investors.
In this ever-growing inflationary environment, Bitcoin, with its encoded inflation and finite supply; may start to be considered as a perfect alternative to fiat by many traditional investors. Additionally, it presents various advantages over gold as well, including the already mentioned finite supply coupled with easy instant transferability.