Up to the most recent correction, the price of Bitcoin (BTC) repeatedly rose above $ 10,300 and tried to reach the 2020 maximum above $ 9,500. 2020 began with a strong uptrend, and altcoins followed Bitcoin’s price action.
This cumulative trend portends a full bullish cycle ahead, as the last period of high Bitcoin growth was between April and June 2019.
The volatile behavior observed since the beginning of the year may challenge the traditional assumptions associated with Bitcoin and other major currencies. One such assumption is the belief that Bitcoin is closely associated with gold.
Cryptocurrencies and precious metals bonds
A previous analysis by Cointelegraph experts showed that the digital narrative of gold status attributed to Bitcoin may not be as realistic as investors actually believe. The lack of a significant relationship between Bitcoin’s profitability and gold’s profitability, as well as the low correlation between years, gives rise to thought.
The same can be said about the associative relationship between Litecoin and digital silver. A critical analysis of the links between cryptocurrencies and precious metals opens the door to further speculation.
The correlation between the top 10 cryptocurrencies and gold
Analyzing the correlations between the top 10 cryptocurrencies in the market and the profitability of gold in January 2020, we unexpectedly found that XRP, and not Bitcoin, has the strongest correlation with gold. XRP correlates at 34.1%, and Bitcoin (BTC) – at 21.5%. Moreover, both Ether (ETH) and Bitcoin Cash (BCH) have a very similar correlation with gold, like Bitcoin with 20.1% and 19%, respectively.
In the opposite direction, Teter (USDT) has an inverse correlation with gold at -37.7%. This is surprising since the behavior of a stable coin such as USDT may be more associated with a precious metal such as gold than with a very volatile coin such as Bitcoin.
A 100% correlation means that each cryptocurrency and gold are completely moving in the same direction, while a -100% correlation means that they are inversely related, or, more simply, when one rises, the other goes down. A 0% correlation means that each cryptocurrency and gold are not connected in any way.
If you look at a wider time frame, such as 2019, the assumption that Bitcoin is more associated with gold is confirmed. Bitcoin is correlated at 15.5% with gold for the whole of 2019, being the most correlated currency with gold from the top 10.
As previously shown, Bitcoin Cash is the second most correlated currency with Bitcoin (BTC) at 8.2%, followed by Bitcoin SV (BSV) at 7.3%. Throughout 2019, XRP is less correlated (7.1%) with gold than in 2020, which casts doubt on the idea that a more stable correlation can persist for a long period.
Excellent total return since the beginning of the year
The beginning of 2020 was marked by the beginning of a strong positive trend. If an investor bought one of the top 10 cryptocurrencies from January 1, 2020 to February 9, 2020, he would count on a total return of at least 134% if Tether was excluded from the analysis. Of the first 9 currencies, Bitcoin brought the smallest profit, shifting the emphasis to a possible altcoin bullran.
The largest positive dynamics were observed by Bitcoin SV and Bitcoin Cash with a combined return of 228% and 179%, respectively. Other major coins such as Binance (BNB), EOS, Ether, Litecoin, Tezos (XTZ) and XRP offered investors a cumulative return of between 138% and 167%. Meanwhile, the price of gold in January rose slightly higher by 4%.
What is digital gold, XRP or Bitcoin?
A recent Coinbase report suggests that Bitcoin is closer to being called digital gold because of the basic characteristics of the network, which are similar to those that have gold, namely the asset shortage also coincides with the upcoming bulran in the future.
However, the results also show that since the beginning of the year, XRP is the cryptocurrency that most correlates with gold, and Bitcoin is in second place. As 2020 moves, the relationship between gold and Bitcoin may come close to the period that was observed throughout 2019, when the digital asset was the most correlated coin with gold.