Bitcoin cruises to new highs, gold price fluctuations hint at investor rotation
A quick rundown
Will the Bitcoin Price Surge Persist?
Amid decreasing trade tensions between the US and China, and a more lenient stance from President Trump towards the Federal Reserve, Bitcoin soared beyond $93,500, hitting a fresh monthly peak. Gold, on the other hand, saw a spike near $3,500 followed by a retreat to $3,300, a move analyzed by experts as a possible shift in the broader market sentiment.
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The hype in risk assets expanded to Bitcoin on Tuesday evening, with the digital currency surging as optimism surrounding the US-China trade dispute and American monetary signals boosted investment appetite.
This rise followed conciliatory remarks from US officials and reports of a softening stance by President Donald Trump on firing Federal Reserve Chair Jerome Powell, enhancing sentiment throughout equities and commodities.
Gold also witnessed a substantial surge initially, reaching $3,500, but then retreated to $3,300. Analysts interpret this as a sign of capital rotation towards digital assets like Bitcoin due to its perceived undervaluing compared to gold amid swelling inflation expectations and monetary expansion.
According to Ryan McMillin, Merkle Tree Capital's chief investment officer, both gold and Bitcoin depend on the worldwide M2 money growth, although with a delay for Bitcoin of around 90 days. While gold reacts more swiftly to changes, Bitcoin tends to trail, aligning with strengthening gold rallies and potentially leading to Bitcoin's own upswing.
McMillin suggests that gold's abrupt retreat overnight could indicate a shift among store-of-value investors towards Bitcoin as M2 supply increases could lead to skyrocketing global M2 money, in turn pulling up both gold and Bitcoin.
Key events in the near future to watch for Bitcoin are the Federal Reserve's interest rate decision and ongoing fiscal negotiations between Washington and Beijing. However, traders express concerns about historically high funding rates and diminishing on-chain activity amid the meteoric rise. Still, the overshadowing narrative tilts in favour of Bitcoin, starting the week on a bullish note.
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Additional Perspective
The relationship between M2 money supply, gold, and Bitcoin's price movements entails several essential components:
M2 Money Supply and Bitcoin
- Lagging Correlation: Bitcoin's price has a tendency to follow the global M2 money supply with a delay of approximately 90 days, but the relationship is not always consistent[1][3]
- Catalyzing Investment: Expansion in M2 money supply can drive more investment into Bitcoin due to increased liquidity in financial markets and Bitcoin's appeal as a store of value during fiat currency devaluation[4]
M2 Money Supply and Gold
- Inflation Hedge: Gold is often perceived as a store of value and a hedge against inflation, especially amid rising M2 supply[4]
Bitcoin vs. Gold
- Stores of Value: Both Bitcoin and gold are viewed as stores of value, particularly during times of economic uncertainty or inflation. However, Bitcoin's decentralized nature and potential for higher returns may draw different investors than gold[4]
- Market Dynamics: Despite dwelling in the same asset class, Bitcoin's price exhibits more volatility due to its digital nature and speculative investment[3][4]
- The rise in Bitcoin was influenced by optimism surrounding the US-China trade dispute and American monetary signals, boosting investment appetite, leading to a surge beyond $93,500.
- Gold saw a spike near $3,500, but then retreated to $3,300, a move interpreted as a possible shift in the broader market sentiment, suggesting capital rotation towards digital assets like Bitcoin.
- According to Ryan McMillin, Merkle Tree Capital's chief investment officer, both gold and Bitcoin depend on the worldwide M2 money growth, although with a delay for Bitcoin of around 90 days.
- McMillin suggests that gold's abrupt retreat overnight could indicate a shift among store-of-value investors towards Bitcoin as M2 supply increases could lead to skyrocketing global M2 money, in turn pulling up both gold and Bitcoin.
- Ethereum and other digital assets like Initial Coin Offerings (ICOs) could also experience growth as investors look for undervalued opportunities in the realm of technology and finance.
- Bitcoin and Ethereum, in particular, are perceived as undervalued compared to gold amid swelling inflation expectations and monetary expansion, making them attractive areas for investment.
- In the coming days, key events to watch for Bitcoin include the Federal Reserve's interest rate decision and ongoing fiscal negotiations between Washington and Beijing, which could serve as catalysts for further price movements in Bitcoin, gold, and other digital assets.
