Bitcoin Correlation with Gold Turns Negative Amid Market Decline

The price of bitcoin (BTC) is currently experiencing a bearish trend, attributed to the asset’s ongoing decline and limited range movements. Consequently, the leading cryptocurrency has experienced a decoupling from gold.

As reported by analysts at CryptoQuant, bitcoin’s value has been falling while gold has surged to unprecedented peaks, resulting in an inverse correlation between the two assets.

Bitcoin Breaks Away From Gold

The inverse correlation observed between bitcoin and gold suggests a risk-averse market environment, where investors are favoring traditional safe-haven assets over more speculative options like cryptocurrencies. While BTC’s relationship with gold is weakening, it continues to align directionally with the declining U.S. stock markets. Analysts emphasize that this trend indicates that macroeconomic pressures are significantly influencing BTC.

Since early July, the Nasdaq 100 Composite index has decreased by 10%, and BTC has fallen 16%, with the correlation between them shifting from -0.85 to 0.39. CryptoQuant noted that this positive correlation with the Nasdaq is expected; hence, BTC may be adversely impacted by a downturn in the stock market.

Additionally, bitcoin is also correlating with the weakening U.S. dollar, which has lost ground against other currencies. According to CryptoQuant, the simultaneous decline of the dollar and BTC could suggest broader financial concerns or risk aversion as global markets encounter instability. This trend drives investors away from both the USD and riskier assets.

Is a Deeper Correction on the Horizon?

Bitcoin’s downward movement has affected its valuation metrics, signaling a bearish outlook. CryptoQuant’s Bull-Bear Market Cycle Indicator transitioned into the bear phase on August 27, when BTC was priced around $62,000. At the time of this writing, the asset was valued at $57,880. As this indicator remains in the bear phase, analysts do not foresee a major rally, indicating potential risks of further corrections in the market.

Moreover, the current conditions surrounding bitcoin have been observed in previous instances. The asset experienced 30% corrections in March 2020 and May 2021 while the Bull-Bear Market Cycle Indicator remained in the bear phase.

Additionally, the Market Value to Realized Value (MVRV) ratio of bitcoin has been consistently below its 365-day moving average since August 26, highlighting the risk of additional price corrections.

Meanwhile, bearish indicators are also evident in the actions of long-term bitcoin holders, who are spending at diminished profit margins, indicating a lack of new demand for BTC.