Resulting from a crash in both gold and bitcoin (BTC) prices recently that sent the much-discussed gold-to-bitcoin exchange even soaring, the debate is now on regarding what prompted the sell-off, and whether a Russian COVID-19 vaccine could possibly be disturbing the price of both assets.
At the time of this article, bitcoin was still dropping by 2.6% over the past 24 hours, trading at $11,459, after a correction that began Tuesday night and continued into the early hours of Wednesday brought it down to the $11,200 level before a recovery towards $11,500 began. Meanwhile, the price of gold also saw similar declines, dropping steadily over the same period before somewhat recovering in early Wednesday trading.
Russia stated yesterday that it had passed the world’s first COVID-19 vaccine, as the state’s Ministry of Health issued what’s called a certification for a vaccine candidate that has been tested in just 76 people. Nevertheless, the vaccine cannot be used widely until 1 January 2021, probably after more comprehensive clinical trials have been completed, according to Science.
However, scientists around the world promptly knocked the certification as premature and inappropriate, as it has yet to complete a trial that convincingly shows it is safe and effective in a large group of people, the report added. Additionally, in Russia, media outlets are questioning what a vaccine could do to BTC rates. For some, the concept of evading a second wave is vital.
RBC quotes Oleg Abelev, specialists at the Lemon for Tea investment group as stating that while crypto prices rallied this year, that increase could dissolve if the virus-related death toll starts to rise again. A second crypto market drop due to panic selling, he opined, was almost a “100%” certainty.
The media outlet also cited experts as saying that while an effective coronavirus vaccine could cause volatility in traditional markets – firing bond sell-offs – BTC is much harder to predict.
RBC mentioned that the agreement among the experts it spoke to was that a second wave would negatively affect crypto prices and bitcoin in particular. However, a vaccine could help offset these fears, meaning that BTC’s $3,800 low (in March this year) was “probably not going to be repeated.”
In the meantime, although numerous other factors than a COVID-19 vaccine may have been the primary driver for the gold sell-off, including reasonable outflows from gold-backed ETFs (exchange-traded funds) and an especially overbought reading on the Relative Strength Index (RSI), it seems that hopes for a quicker economic recovery have put some pressure on gold in the short-term.
Assume the correlation linking the two forms of safe-haven assets does hold up. In that case, the profit-taking in gold could potentially also extend itself to bitcoin, with the bitcoin-to-gold “realized correlation” recently hitting an all-time high, according to crypto analytics firm Skew.
Bitcoin and gold correlation chart:
“Once [gold] got to $2000 per ounce, in a lot of investors’ minds that could have been an opportunity to take the profit off the table,” Gavin Wendt, senior resource analyst at MineLife Pty. told Bloomberg. He also added that the news about a vaccine being approved by Russian authorities “was a cue for some investors to take profit from their gold positions and to leap back into equities.”
At the same time, Yung Yu-Ma, chief investment strategist at BMO Wealth Management, told Business Insider shortly this month that although “several factors have converged in support of gold, the picture around year-end may show cracks,” hinting that “an accelerated vaccine timeline” could improve the global economic outlook to the extent that the demand for safe-haven assets would take a hit.
On the other hand, several analysts also warned against jumping back into the stock market at the moment, given valuations that appear “disconnected” from the economy.
“Measured by the price-earnings ratio it is clear equities are disconnected from the real economy as they are pricing in a recovery that is very far from certain and in a scale which is unfeasible,” Ross Norman, CEO of MetalsDaily.com, told Business Insider, noting that “gold is vulnerable to a stock market correction because […] if equities fall so will gold.”
The suggestion that investors are overly optimistic about specific segments of the stock market could also spell trouble for bitcoin, given the correlation that has been observed recently between stocks and bitcoin. This is particularly true when comparing bitcoin to technology stocks, with for instance the digital asset management firm CoinShares saying in a new report that bitcoin, as a “potentially disruptive technology,” has a “risk profile […] similar to that of technology stock.”
However, other reports do suggest that interest in bitcoin is still rising, with institutional investors being the key players this time around.
Talking with Bloomberg on Tuesday, Henri Arslanian, PwC’s Global Crypto Leader said his firm is “continuing to see increased interest from institutional investors.”
Just recently, US-based major industry intelligence company MicroStrategy said that it had purchased BTC 21,454 at an aggregate price of $250m as it “has recognized bitcoin as a legitimate investment asset that can be superior to cash.”