Will Bitcoin Follow Gold to New Highs?

Reading Time: 2 minutes
  • Bitcoin has been mirroring gold in short term moves for some time
  • Comparing the two respective bear markets throws up more similarities
  • If Bitcoin follows gold in its post-bear market reaction we could be in line for a good few months

Bitcoin and gold supporters may have it in for each other (at least some of them do), but there is no denying that they share a key function as a hedge to fiat currency inflation. Analysis of the charts shows that they also share price performance similarities, so it’s worth looking closer into the relationship to see what Bitcoin followers can learn from how gold has dealt with its own bear market.

Bitcoin and Gold Mirror Bear Market Recovery

Gold ended its last bull run in September 2011 as the economy began to recover from the financial crash of 2008. A seven and a half year bear market then ensued, which ended in May last year when gold finally broke through its lengthy downward trendline:

gold chart 1

Let’s compare this chart with Bitcoin’s performance this year in its attempts to overcome its own bear market, which had lasted for two and a half years up to July:

Bitcoin chart 2

As we can see, both assets hugged the trendline for a few weeks before finally breaking through, after which they reverted back to the trend line to test it as support. This gives us a gold cycle-cycle chart that looks like this:

gold chart 3

The Bitcoin cycle-cycle chart looks eerily similar:

Bitcoin chart 4

The two charts are almost identical, except of course for the fact that Bitcoin is rattling through at something like three times the speed.

Now let’s take a look at what gold has done since breaking through its downtrend:

gold chart 5

Gold has roared to all time highs, piling on a 64% gain since breaking free of that downward trendline little more than a year ago. This gives us a full gold chart that looks like this:

gold chart 6

Now of course there is no saying that Bitcoin will perform the same way as gold, but the fundamentals are very similar – both are responding favorably to the risk of inflation through the printing of fiat currency and both have just come out of their own respective bear markets.

Overlaying the two charts highlights the similarities, and also shows where Bitcoin could be heading:

Bitcoin gold comparison 7

Given the closeness with which the two assets have traded during their respective market cycles, and the fact that Bitcoin is mirroring gold on smaller moves, it is not too much to think that it will follow it on a higher time frame and seek out all time highs later this year or in 2021.