Cryptocurrency News

Bitcoin sales have played a key role in increasing gold’s appeal


May was a testing time for cryptocurrencies like bitcoin (B T c) the leading digital asset was already faltering after rallying to around $65,000 in mid-April, fueled by profit-taking sentiment among traders.

Elon Musk accelerates sell-off Reversing Your Company’s Plans To accept bitcoin as payment for Tesla’s electric cars.

Later in the month, the People’s Bank of China repeated To the financial institutions of the country against the use of virtual currencies for payment. Chinese officials are also start to keep a close eye On crypto mining – the process by which computers mine cryptocurrencies such as bitcoin.

More shock to the cryptocurrency sector came from US tax and monetary officials, including Federal Reserve Chairman Jerome Powell, who suggested more regulations are needed.

All and all, the cryptocurrency market lost over $500 billion in May due to a flurry of negative updates. Being the benchmark digital asset, bitcoin also faced aggressive downside pressure, Monthly drop of 35.50%.

Bitcoin is making a sharp reversal on its monthly charts after the May crash. Source: BTCUSD on TradingView

Meanwhile, the physical gold exchange-traded fund (ETF) recorded its strongest months since September 2020 in May 2021. Funds around the world put in a total of $3.4 billion, compared to $4.8 billion in September, according to data provided by the World Gold Council. WGC).

By extension, the US-based gold ETF experienced an inflow of $2.1 billion. The European Gold ETF reported deposits of $1.6 billion. Nonetheless, Asian funds tracking precious metal prices noted an outflow of about $300 million.

Gold etf flow chart. Source: WGC

Strong demand for gold ETFs also contributed to the rise in its spot prices. As a result, the XAU/USD exchange rate jumped 7.6% to $1,912.785 per ounce in May.

negative correlation

Polar opposite moves in the bitcoin and gold markets indicated that a short-term negative correlation is underway between them. In addition, Wall Street legends Nick Kolas and Jessica Rabe In its DataTrack research report it is written The selloff in virtual currencies may have boosted gold’s appeal among institutional investors.

Market strategists projected bitcoin as a riskier alternative to gold. Meanwhile, he noted that Elon Musk’s tweets didn’t cause the precious metal’s value to drop by half in five weeks, nor did it respond to policymakers’ threats of a ban.

“Gold, relative to virtual currencies, is a no-drama investment. [Therefore]We continue to recommend 3-5 per cent positions in gold for a diversified portfolio.”

Bitcoin is largely a speculative bet for the wealthy and small retail investors seeking quick profits. But BTC’s fixed supply has also seen benefits from rising inflationary fears, like gold. Corporates including Tesla, Raffer Investments, Square and MicroStrategy added bitcoin to their cash-governed balance sheets.

They did this to offset inflation risks brought on by the Federal Reserve. unprecedented expansionist policies, including nearly zero interest rates and a $120 billion monthly asset purchase program.

High-profile investments played a key role in the doubling of bitcoin price in Q1 2021, driven by an increase in debt-fueled leverage bets and an influx of new retail traders into the market to nearly $65,000 by mid-April.

Gold ETFs, on the other hand, reported six months of back-to-back outflows till May 2021. In January 2021, analysts at JPMorgan reported that gold ETFs lost nearly $7 billion in the same period Grayscale Bitcoin Trust (GBTC), a trust operated by New York-based Grayscale Investments attracted $3 billion.

A lack of capital injection into precious metals funds also lowered its spot bids; XAU/USD declined 10.14% in Q1 2021, in contrast to bitcoin’s 100% return.

In May 2021, another JP Morgan report suggested that large institutional investors turned their leverage into bitcoin to seek opportunities in gold. they Cited Open interest data on bitcoin futures contracts on the Chicago Mercantile Exchange, which experienced the biggest drop since October 2020. Analysts at JP Morgan said:

“The picture of bitcoin flows is deteriorating and is pointing to continued layoffs by institutional investors.”

Bitcoin (orange) has been trending opposite to gold (pink) so far in 2021. Source: TradingView

The statement also appeared as UK-based fund Raffer Investments, which manages around $33.95 billion for wealthy individuals and charities, also announced on Tuesday that it has unloaded its entire bitcoin position and posted 1.56 billion dollars in profits. Billion dollars netted.

Duncan McInnes, Director of Investments at Ruffer, Told The Finance Times reported that they had shifted funds to gold, commodity stocks and inflation-protected bonds.

McKins said bitcoin is still “on the menu” of Raffer’s potential investments in the future, noting that the world is desperate for a new safe-haven against ultra-low bond yields.