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Nexo

Check Out Bitcoin And Gold’s “Uncanny” Correlation During Powell Speech

Tony Spilotro by Tony Spilotro
8 months ago
in Bitcoin
0

Yesterday, Federal Reserve Chairman Jerome Powell held a speech to talk about inflation and the impact on the economy. During Powell’s speech, the two top hedges against inflation pumped, then almost immediately dumped, faking out investors prepared to act on the bullish breaking news.

Comparing the price action between the two assets, the correlation is “uncanny” claims one well-known analyst. But what exactly does this mean for Bitcoin and gold?

Inflation Rate Allowed To Run Over 2% Prompts Pump From Hard Assets

The United States has its back against the wall thanks to well over a decade of mismanaged monetary policy.

In 2007, when the Great Recession first hit, measures were taken to prevent the economy from spiraling into a devastating collapse.

Although the Great Recession ended officially by July 2009, monetary policy was never tightened back up. Instead, the Federal Reserve and Central Banks kicked the can down the road for another generation to deal with.

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RELATED READING | CAN BITCOIN FIX WHAT TOP ECONOMISTS SAY CENTRAL BANKS CANNOT SOLVE?

But then the pandemic hit, forcing the US to once again take extreme measures to prevent economic disaster. The Federal Reserve has added trillions of dollars in assets to its balance sheet.

As a result, to keep debt from getting more out of control than it already is, Fed Chairman Jerome Powell revealed that the inflation rate would be allowed to go over the normal rate of 2% per year.

This means that the government is forcing individuals to pay back this government debt by way of decreasing buying power, rather than taxing the wealthy to offset the impact of overspending.

For those that don’t understand what this means: an account with $100,000 is worth $100,000 now. If left alone for 25 years, even though it remains $100,000 in fiat, it now has the buying power of what $50,000 does today at the 2% inflation rate.

So where do investors store their wealth? The answer is Bitcoin and gold, and the two assets pumped in the most uncannily correlated way during Powell’s speech, giving credence to the cryptocurrency acting as digital gold.

Bitcoin = digital gold

Uncanny correlation during J-Pow's speech. pic.twitter.com/rAeGHtohjL

— Mati Greenspan (tweets ≠ trading advice) (@MatiGreenspan) August 27, 2020

Bitcoin and Gold Share Uncanny Correlation As Safe Haven Assets React To Hyperinflation

If investors can’t store their wealth in cash, the global reserve currency, without watching its value be debased decade after decade, then where do they turn?

For most of history, investors turned to gold: the original safe-haven asset and store of value. When the dollar first decoupled from gold in the 1970s, the asset was priced at just $35 an ounce. Thanks to inflation, that same ounce of gold trades for almost $2,000.

This is because while more dollars can be printed, and debt created that must be paid back through inflation, gold has a finite supply. Gold has been trusted for centuries for this reason, but there is no telling exactly how much supply is beneath the earth’s surface or beyond it.

RELATED READING | GOING DIGITAL: BITCOIN BEATS GOLD AND SILVER IN YEAR-TO-DATE RETURNS

Bitcoin, however, also has a scarce limited supply – yet the total supply in the cryptocurrency is known and transparent for all.

These qualities are why investors have turned to gold and Bitcoin as a hedge against inflation. These investors were prepared for a big boost of bullish momentum stemming from Powell’s big reveal.

They got what they were looking for, but were met with a fakeout, or perhaps a shakeout before the real move upward. Gold and Bitcoin have been on a strong uptrend, and with inflation back in the spotlight thanks to Powell’s speech, the two assets could start shining again.

bitcoin gold btcusd xauusd correlation

Bitcoin and Gold Powell Speech Pump and Dump | Source: TradingView

The abrupt, correlated move took place the moment Powell’s speech started. Both assets pumped, then almost 15 minutes later, dumped back down and below where they started.

This type of move could be viewed as either a fake-out to the upside before a move down, or perhaps a shakeout move before new highs are tapped.

Whatever is next for the two assets, inflation running rampant will keep the two hard assets with limited supplies in high demand for some time to come.

Featured image from Deposit Photos.
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Tony Spilotro

Tony Spilotro

I'm Tony Spilotro. Behind the pseudonym, I'm a digital media executive and global remote work leader with a decade of content experience and excellent. Here, I explore my newfound passions pertaining to privacy, finance, economics, politics, cryptography, property rights, and other libertarian-esque views. I am a Bitcoin evangelist, maximalist, and educator whenever I can be, helping to spread its message of freedom from government control, monetary policy mismanagement, and passing the buck - literally – to future generations. My journey from a curious retail crypto investor to a serious Bitcoin advocate, trader, and technical analyst is an unusual one, but life-changing nonetheless and has become less about money and more about a long-overdue revolution. While a firm believer in the laws governing math and science, I am profoundly fascinated by the impact of astrology and astronomy including moon and solar cycles and planetary alignment and their ability to influence and potentially predict markets. It hasn't yet clicked for me as to how to put anything to use, but I consider it my current rabbit hole I can't yet dig out of. My perspective of growing up alongside the internet, the dot com era, the Great Recession, and roots in video games collecting coins and rare items caused Bitcoin to immediately make sense to me. Through all of these lenses, I seek to produce content that is educational and entertaining, and I thank you sincerely for taking the time to read what I have to say. Please follow me on Twitter and feel free to drop me a line if you would like to work together.

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