Bitcoin’s correlation with gold increased during equities market sell-off
Last week the price of Bitcoin (BTC) rose from $7,100 at the start of the week to a $7,400 high before the flagship cryptocurrency endured another round of sell-offs that saw it drop to $6,700. Ethereum (ETH), the second-largest cryptocurrency by market capitalisation, also went from $150 to a $175 high before dropping back to where it started.
The cryptocurrency space may be set to see an influx of over 400 million new users, as reports suggest that Reddit is about to introduce an Ethereum-based rewards system that will give its users extra benefits, via so-called “Community Points.” The new feature was first shown by a user who revealed what appears to be a built-in cryptocurrency wallet that allows users to earn tokens on the Ethereum network.
The built-in wallet will allow users to vote on community polls, give them access to “Special Memberships,” and more. A Reddit spokesperson confirmed a new feature is in the works, but did not confirm whether it will be based on the Ethereum blockchain:
“We continuously experiment with ways to support communities on Reddit. In this instance, we’re working with one community to test a feature that represents a user’s involvement in a community. We value and seek out community feedback as we continue to explore features that engage our users and communities.”
Reddit co-founder Alexis Ohanian is a well-known cryptocurrency supporter, who through his venture firm Initialized Capital, has invested in various cryptocurrency firms, including Ethereum decentralized exchange DDEX.
Ethereum-based decentralised finance projects, according to a report published by DappReview, have grown nearly 780% last year as investors are increasingly using apps such as Compound and dYdX to trade and earn interest on their cryptocurrency holdings.
On the Ethereum blockchain, the report notes, the total transaction volume on decentralised applications during the first quarter of the year jumped to $5.64 billion, increasing 652% from 2019.
Those looking for safe haven assets during market drops can also soon turn to bitcoin. A report published by ETF and Mutual Fund Manager VanEck Global revealed the flagship cryptocurrency’s correlation with gold “increased significantly” during the coronavirus-induced sell-off seen in March. The report found that a small allocation of bitcoin to a 60% equity and 40% bond portfolio would have significantly reduced volatility throughout the sell-off.
Indeed gold-backed cryptocurrencies have started seeing premiums as investors are using them to gain exposure to the precious metal. Top cryptocurrencies backed by the precious metal – Tether’s XAUt, PAX Gold (PAXG), and Digix Gold (DGX) have been trading between 1% and 5% above the spot price of gold.
Searches for Bitcoin’s halving surge
Bitcoin’s upcoming halving event, in which its block rewards will drop from 12.5 BTC to 6.25 BTC per block, has been increasingly drawing attention, with search interest recently reaching a new all-time high, beating the figures seen ahead of the 2016 halving.
Block rewards on the Bitcoin blockchain drop every 210,000 blocks, which are mined in roughly four-year intervals. These events keep the BTC being introduced in circulation in check, such that all 21 million coins will be mined by around 2140.
Other halving events have led to massive bitcoin price breakouts. The first, in November 2012, saw its price go from about $12 to around $950 a year later, while in 2016 the cryptocurrency’s price was $650 at the time of the halving, and soared to a near $20,000 all-time high by December 2017.
Some Bitcoin miners and traders expect the price to rally after the halving, as the amount of computing power has been rising steadily for the last few months. Miners are essentially competing for block rewards before these are cut in half. Data also shows that the number of entities with over 1,000 BTC in their wallet has hit a two-year high ahead of the halving.
Others have pointed to the Efficient Market Hypothesis to argue the halving is already priced in, as everyone knows it’s going to occur. The event is set to occur in May.