According to analysis by Wolfe Research, the Bitcoin rally, initially spurred by microeconomic factors towards the end of 2023, has potentially merged with a broader macroeconomic rally in gold.
Gold, which witnessed a 5.7% surge in March, owes much of its recent gains to this period, with Friday marking its fourth consecutive session of reaching record highs, fueled by robust employment data. Bitcoin, on the other hand, has also been on an upward trajectory, hitting all-time highs on Tuesday and Friday, and registering an 8% increase in March alone.
The positive momentum in Bitcoin's price was initially underpinned by expectations of increased demand following the approval of spot Bitcoin exchange-traded funds (ETFs) in the United States and the anticipation of a price surge immediately post the April halving event. However, as highlighted by Stephanie Roth, Chief Economist at Wolfe, in a recent note, "Positive factors for Bitcoin have been accumulating over the past year. Growth stocks have performed strongly (correlating with Bitcoin), and the market has begun pricing in a more accommodative policy stance by the Federal Reserve."
"While we initially believed the introduction of spot ETFs and the upcoming halving cycle to be the primary catalysts for the Bitcoin rally, it now appears supported by positive risk appetite and increasing liquidity," Roth added.
These factors have also contributed to the recent strength in gold prices. Traditionally viewed as a safe haven asset and an inflation hedge, gold has seen renewed interest amidst the current economic backdrop. While Bitcoin has been occasionally dubbed "digital gold," Marion Laboure, Macro Strategist at Deutsche Bank, cautioned against a direct comparison, noting that gold's performance is contingent upon a different set of factors.
"Gold experienced a 21% decline from March to November 2022. During this period, the core CPI averaged 6.2%, and the S&P500 declined by 11%. We view gold as an asset that thrives primarily in environments where the dollar and real interest rates are on a downward trajectory, signaling a more accommodative stance by the Federal Reserve."
Deutsche Bank pointed to the introduction of spot Bitcoin ETFs in the U.S., record inflows, and the upcoming April halving event, combined with increasing liquidity, as key drivers behind Bitcoin's surge to new highs this week and the potential for further gains.
Laboure further suggested that as treasury yields decline, more investors may seek alternative assets offering higher returns. This shift could provide additional support to the ongoing rally in digital assets by directing capital towards non-traditional investment classes such as cryptocurrencies.
