- Creative Planning’s chief strategist, Charlie Bilello, has recently analyzed the positive performance seen in both Bitcoin (BTC) and gold markets this year.
- Bitcoin surged above $64,000 for the first time since August 26, marking a weekly gain of 7%. Similarly, gold has appreciated by 27% year-to-date, recording its highest level in history during this period.
- “The increase in the valuation of gold and Bitcoin can be attributed to the depreciation of fiat currencies and global uncertainties,” stated Creative Planning.
A thorough analysis of Bitcoin and gold’s performance reveals the financial trends influencing both assets, offering investors crucial insights for future decisions.
Recent Performance of Bitcoin and Gold
Over the past week, Bitcoin has surged past $64,000, a benchmark it hadn’t hit since late August. This surge represents a 7% increase in Bitcoin’s value over the week. Concurrently, gold has seen a 27% appreciation since the beginning of the year, reaching its all-time high. This trend has prompted investors to take a closer look at the underlying factors driving these movements.
Economic Factors Influencing Gold’s Rise
Gold has traditionally been a safe haven asset, viewed as a hedge against the depreciation of fiat currencies and economic uncertainties. This year, it has once again assumed that role. The primary drivers behind gold’s recent upward trajectory include monetary expansions and global economic concerns. During the COVID-19 pandemic, for instance, gold prices began to climb, reflecting a flight to safety amid mounting uncertainties.
Bitcoin’s Correlation with Net Liquidity
Similarly, Bitcoin has displayed a strong correlation with the Federal Reserve’s net liquidity metric. Both Bitcoin prices and net liquidity hit their lowest points towards the end of 2022, coinciding with the collapse of FTX. Since then, a rise in net liquidity has been mirrored by a steady increase in Bitcoin’s price, suggesting that market liquidity is a significant factor.
Potential Boost for Bitcoin
The Federal Reserve’s balance sheet currently stands at approximately $7.1 trillion. Despite the ongoing tightening policies of central banks, the pace of this tightening has slowed considerably. Reverse repurchase agreement balances (reverse repo) have exceeded $300 billion, and the gradual unwinding of these balances has started injecting liquidity back into the financial system. This restored liquidity is then recycled for lending, investing, and other economic activities.
Global Central Bank Balance Sheets and Bitcoin
The cumulative balance sheets of the world’s major central banks, including those from the United States, the European Union, Japan, and China, amount to around $31 trillion. According to Creative Planning’s analysis, this increase in global liquidity could act as a catalyst for Bitcoin and similar assets, further amplifying their value.
Conclusion
The recent performance of Bitcoin and gold underscores the intricate dynamics of global finance. As fiat currencies fluctuate and economic uncertainties prevail, these assets have demonstrated significant upward potential. Investors should consider these trends and the underlying economic factors driving them, as they strategize for future financial moves. Moving forward, the increased liquidity in the global financial system may offer further growth opportunities for Bitcoin and other investment vehicles.
