Bitcoin Rally Stalls as Increasingly Correlated Gold Drops Below $2K

Bitcoin's recent price rally has shifted to a sideways meander, possibly taking cues from gold's drop from record highs.

• The cryptocurrency is trading in the general range of $11,600–$11,900 for the fourth straight day.
• Meanwhile, the precious metal is trading near $1,988 at press time – down 4.2% from the record high of $2,075 reached on Friday.
• Both assets have recently developed a relatively strong positive correlation.
• As such, gold's decline may have applied the brakes to bitcoin’s rally from lows near $9,000.

• Gold (above right) rallied from $1,800 to $2,075 in the three weeks to Aug. 7.
• Over the same period, bitcoin rose from $9,100 to a peak of $12,118.
• As a result, the one-month correlation between the two assets has strengthened to a record high of 68.9%, as noted by data source Skew.
• While the growing correlation validates the"store of value" narrative surrounding bitcoin, it also makes the cryptocurrency vulnerable to sell-offs in gold.
• “Gold is feeling the pull of gravity with U.S. Treasury yields showing signs of life," Singapore-based QCP Capital said in its Telegram channel.
• QCP noted that investors should keep a close eye on developments in bond yields and gold because they may have a bearing on bitcoin and ether prices.
• The U.S. 10-year bond yield is hovering near 0.6% at press time, representing a 10 basis point gain from the recent low of 0.5%.
• Gold, which does not provide a yield, may suffer deeper pullbacks and potentially push bitcoin lower if bond yields continue to rise.
• Joel Kruger, a currency strategist at LMAX Digital, believes a potential sell-off in stock markets is a bigger risk to bitcoin's upward trajectory than pullbacks in gold.
• "A turnaround in stocks could threaten bitcoin, given risk for extended stocks to reverse and the potential to see what we saw back in March," Kruger told CoinDesk in a Twitter conversation.
• Global equities could come under pressure if the U.S. Congress remains deadlocked on additional coronavirus stimulus.

Also read: After Falling 65% This Year in Bitcoin Terms, Do ‘Stablecoins’ Need a Rebranding?