Bitcoin-Gold Ratio Hits Record Low, Signaling 2017 Buy Setup

The value of Bitcoin against gold dropped to an all-time low in late January, and analysts are of the view that valuation indicators are now showing that the cryptocurrency has a stronger long-term buying opportunity than in the 2017 bull market.

According to the published data from Bitwise this week, the price of Bitcoin/Gold (BTC/XAU) is the lowest since the price adjusted to the global money supply. The indicator, tracked by Bitwise Europe, indicates that BTC has already reached an extreme typically associated with major market bottoms.

BTC/Gold is at Record Lows

2015 was the last time that Bitcoin was trading at the same levels as gold. This was succeeded by an upsurge, spanning over a couple of years, with BTC soaring near $20,000 at the end of 2017. 

Analysts who have been monitoring the current setup assert that it is identical to the last stage of accumulation, but the current macroeconomic situation is completely different.

Gold has risen by approximately 50% above its price from last year. This happened as investors sought out safe-haven investments amid increasing global political and monetary uncertainty. As such, gold has outperformed Bitcoin by 18% over the same time frame, widening the valuation spread between these two assets.

Source: X

Andre Dragosch, Head of Research at Bitwise Europe, said that the type of large divergence seen previously was followed by a slow influx of capital back into BTC. But he does not anticipate a sharp reversal soon.

Dragosch also suggested that if there are no major changes in macroeconomic conditions, the indication of the rotation trend may begin to appear in February and possibly continue through the end of March.

Also Read | Bitcoin Stabilization Near $84,000 Could Signal Next Major Rally

Long-Term Positions in Bitcoin

Meanwhile, analyst Benjamin Cowen warned that Bitcoin might still be underperforming compared to traditional investments in the short-term. This is especially true when the demand for defensive assets is still high.

According to him, hopes of a rapid, extensive rotation out of the precious metal will be misplaced as risk sentiment is weak. Regardless of the uncertainty in the short term, on-chain evidence indicates that long-term holders of Bitcoin are taking up buy positions.

Metrics of entities that have not transferred BTC in the past 155 days indicated renewed accumulation during the pullback in January. In the past, such behavior has been observed toward the establishment of long-term market bottoms.

During prior cycles, accumulations by long-term holders commonly happened ahead of sudden price recoveries in weeks or months, even as market sentiment stayed feeble.

Why This is Important

Historically, when the Bitcoin/gold ratio is at its widest margin (as is currently the case), it is typically indicative of future large increases in prices and is consistent with significant increases in long-term holdings, regardless of the volatility in the short term.

Also Read | Bitcoin Crashes Below $79K As $650M Liquidations Rock Crypto Market