BTC vs Gold and QQQ

Good morning everyone and welcome to our Chart of the Week series! Every week we provide you with one of the most informative Bitcoin charts, sent directly to your inbox. This week we dive into Bitcoin’s volatility compared with the rest of the market.

The Great Bitcoin Decoupling…?

Since our last article, bitcoin has had some amazingly strong performance- moving over 10% higher. It has broken out of a multi-month downtrend (red) and bounced on our prior 2024 resistance in the mid-70s, a very bullish sign. In fact, it has started to vastly outperform Nasdaq, a dynamic we’ve been writing about for months.

Overview

The equity market and risk-assets had a strong week, on hopes of de-escalation in the trade war. The Nasdaq finished the week up over 6% and the S&P 500 closed 4.6% higher, a very strong signal that buyers are willing to step in and buy the fear. The 10yr treasury yield fell 8bps and the dollar appears to have found a bottom, closing the week almost above 100 (a key level to watch) and it appears that the foreign selling out of USD-assets has at least, paused for the time being. The VIX, the fear gauge for the equity market, closed below 25 for the first time since late March. 

Bitcoin vs Nasdaq

Notably, bitcoin has outperformed the Nasdaq yet again, and has outpaced it by over 13% in the past month alone and 21% in the past two months. We’ve been writing about this particular pair for a few months now, and we continue to think it’s incredibly notable to see this level of outperformance. In fact on Tuesday, we saw an all-time high in BTC/NQ, though it was sold and is now hovering right around the prior all-time high.

There’s been a lot of talk of the “Great Decoupling”, wherein bitcoin breaks out of its “Nasdaq beta” role, and performs purely on its own fundamentals. We think it’s still too early to conclusively say that this decoupling has definitely occurred, but it is certainly notable to see so much outperformance. If the Nasdaq and broader risk complex had not seen such a strong week, we’d be more inclined to subscribe to that view.

Bitcoin vs Gold

Another key pair to watch, has been bitcoin/gold, which also appears to have found a bottom, albeit much lower than the nominal bitcoin/dollar price action. This is likely more of an idiosyncratic gold story, given the trade tensions, central bank buying, de-dollarization, growth concerns and general risk aversion in broader markets. Importantly though, on a long-term chart, bitcoin has still significantly outpaced gold, now 28oz/BTC which is up nearly 100% since the level of 15oz/BTC, just two years ago.

On the shorter-term timeframes, bitcoin seems to be starting to breakout of a similar multi-month downtrend and is up over 12% vs gold over the past week alone. Gold has had an incredible run over the past 18 months, but especially strong over the past few months as the aforementioned fundamental drivers pushed it notably higher.

This being said, it has gone a little bit too exponential to look sustainable (especially for gold, as it’s not known to have bitcoin’s prolonged exponential rallies) and has pulled back notably this week on the assumption that peak trade fears are behind us. We still expect a further pullback in gold over the next week or two, and an eventual re-test of the all-time high in BTC/gold seems likely in the medium term. A pair trade of long BTC, short gold has been looking appealing over the past week. 

Where Next?

Ultimately, we expect BTC/Nasdaq to eventually break its correlation and for bitcoin to start following gold much more closely. Indeed, bitcoin appears to lag behind gold, and this is one of many reasons that we have become much more bullish on BTC in the short-term. Of course, given the headline-driven nature of global markets right now, everything is at risk from a single tweet, so caution is still warranted, but in general, we remain extremely bullish on bitcoin for the medium-long term outlook.