As bitcoin matures, the largest cryptocurrency trades more like gold, a store of value, as evidenced by the two assets’ close correlation with each other this year.
This correlation is likely to hold, said Mike McGlone, commodity strategist at Bloomberg Intelligence, and the same macroeconomic forces pushing gold higher are likely to drive bitcoin as well.
“That’s the key thing about bitcoin is that I don’t see what’s going to stop it from doing what it has been doing for most of its life, and that’s appreciating. The key thing it has been doing since it went to $100 and then to $1,000 and then $10,000, which has really been the consolidation price for the last three years, it just has a history of adding zeros,” McGlone told Kitco News.
Signs of maturity for bitcoin are more adoption, lower volatility, and trading patterns more similar to that of gold, McGlone noted.
On bitcoin’s correlation to gold, McGlone said that “it’s enduring, as bitcoin becomes a more mature and digital version of gold, just look at the 12-month correlation, it’s around 0.77 and the 52-week is around 0.5, the key fact is that it’s the highest ever. Bitcoin is following gold, gold’s made new highs, but its macroeconomic environment I think is quite significant: unprecedented debt to GDP, quantitative easing, negative rates, it makes things like gold and bitcoin look attractive,” he said.
Bitcoin’s correlation to the stock markets has been much more spurious, which suggests that as bitcoin matures, it behaves less like a risk asset.
As bitcoin’s market capitalization grows, central banks may eventually adopt the cryptocurrency, McGlone said.
“Higher prices actually increase demand and there’s no increase in supply,” he said.
Bitcoin’s supply continues to be limited, and McGlone’s research indicates that in while in 2016 the annual rate of new supply was 7%, this number will drop to about 2.5% this year and approach 1% by 2024.
Short-term, bitcoin can expect resistance of $14,000, but should the Democrats win the presidential election, a Blue Wave would provide further tailwinds to the price.