Blocksmith Says: Gold, Bitcoin Dancing to the Same Tune

26 August 2022

In today’s note we are going to look at gold as a proxy for Bitcoin (XBT). As a quick reminder the current stance on Bitcoin is for a downside resolution to the current “corrective” phase and a move lower for the next week plus. So in pure technical analysis terms for XBT, there isn’t much more to add right now.

In previous notes we have looked at the relationship between Bitcoin and Nasdaq futures. There was a sense that XBT was trading like a tech index and sure enough, the positive correlation from January 2018 is 89% and 83% year to date. 

But then something odd happened, they started to decouple and the correlation month to date (August 2022) dropped to  61%. For Gold spot (XAU) it’s more or less the opposite. From January 2018 the correlation is 65%, year to date 68% but interestingly month to date it has risen to 84%. So for reasons unknown to me, and suggestions welcome, gold and bitcoin appear to have started dancing to the same tune.

In cycles terms, gold has a very similar profile to Bitcoin – we are expecting a down continuation into an imminent 40-day cycle trough (early September). Note the failed upside break (second week August) and a negative reversal in MACD.  Momentum rallied across the last cycle trough (21 July at US$1,681) but price didn’t follow up, which points to poor ease of movement to the upside and is near term bearish. Often these patterns occur towards to end of a decline. After the upcoming low, as for XBT, we are also expecting a rally and top out in October.

Christopher Grafton
Christopher Grafton

Chris has been working in the markets for over 15 years variously as a broker, analyst and researcher. He is the author of a well-known book on Hurst cycles analysis, and runs his own market analysis software platform on Bloomberg. He’s also a keen student of both the cello and Brazilian Jiujitsu.

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