Bitcoin’s rally above $81,000 alongside gold has revived speculation that investors are seeking protection against the weakening US dollar.
The largest cryptocurrency rebounded from about $75,600 on Nov. 4, while gold futures surged 3.4% to $4,061.10, their biggest daily gain in three months. The dollar also weakened as investors digested the Democrats’ sweeping victory in the US midterm elections.
The simultaneous gains revived talks of “the debasement trade,” a strategy in which investors buy scarce assets such as Bitcoin and gold to protect their wealth against currency depreciation and mounting government debt.
However, broader financial markets told a more complicated story. The S&P 500 jumped 1.6%, the Dow gained 3%, and Treasury yields declined as investors welcomed the prospect of reduced political uncertainty and constraints on President Donald Trump’s fiscal agenda.
Those developments suggest Bitcoin’s recovery could have more to do with improving market sentiment than a fundamental shift in how investors view the dollar.
Why BTC’s rally alongside gold revived debasement fears
The argument that Bitcoin is increasingly behaving like gold has gained traction among institutional investors in recent months.
In August, Grayscale reported that Bitcoin’s 90-day correlation with gold had climbed above 0.50 from almost zero earlier in the year. Its correlation with the Nasdaq-100, meanwhile, declined from more than 0.60 to approximately 0.33.
Bitwise subsequently found that Bitcoin’s relationship with gold had reached its strongest level since 2020, when extraordinary fiscal and monetary stimulus heightened concerns about the purchasing power of traditional currencies.
Those concerns have a substantial economic foundation. The Congressional Budget Office projects that the US federal deficit will reach $1.9 trillion in 2026 before expanding to $3.1 trillion by 2036, with publicly held debt rising to 120% of GDP.
Yet Wednesday’s market reaction offered another explanation for why Bitcoin and gold moved together.
CryptoSlateThe 10-year Treasury yield declined from approximately 4.95% to 4.89%, while market expectations for inflation over the next year fell from about 2.4% to 2.1%.
Lower bond yields make non-interest-bearing assets such as gold more attractive, while easing financial conditions can support speculative investments, including Bitcoin.
The simultaneous equity rally reinforced that interpretation, particularly as investors anticipated that divided government could constrain additional federal spending.
CoinShares research head James Butterfill also suggested that Bitcoin had already priced in much of the Democratic election victory, leaving room for a recovery once the political uncertainty faded.
Bitcoin’s recovery faces a test as institutional demand remains fragile
Trading activity within the crypto market provides another reason to question whether Wednesday’s gains represented a fresh wave of demand.
CoinGlass data showed approximately $378 million in bearish crypto positions liquidated within one hour as prices surged. Short positions accounted for about 81% of liquidations during that period.
Such liquidations can accelerate rallies because traders betting against cryptocurrencies are forced to buy back positions as prices rise.
Bitfinex’s Nov. 4 analysis similarly found that Bitcoin’s recent recoveries had been driven largely by short covering, with limited evidence of aggressive buying in the spot market.
Institutional flows provided a mixed picture.
US spot Bitcoin ETFs suffered approximately $1.16 billion in withdrawals over the three trading sessions preceding the rebound, their largest such outflow since late June.
However, Farside Investors data showed the funds attracted a combined $74.6 million on Nov. 4, ending the losing streak.
Fidelity’s FBTC received $236.7 million, while BlackRock’s IBIT lost another $201.2 million, highlighting the uneven recovery in demand across the market’s largest investment products.
The modest inflows also left the funds well short of recovering the capital withdrawn during the previous three sessions.
Meanwhile, Glassnode reported that only about 38% of Bitcoin held by short-term investors was profitable, compared with at least 97.5% in early October. That leaves many recent buyers waiting for prices to recover toward their entry levels.
The analytics firm identified $77,700 as an important measure of the average cost basis of active investors, with additional support around $75,700. A sustained decline below $73,000 would threaten the recovery that began in August.
On the upside, Bitfinex identified $84,000 to $85,500 as an area where holders could sell to recover their initial investments. Glassnode also flagged a significant concentration of potential short liquidations near $87,000, which could accelerate another advance.
Bitcoin’s next challenge comes from Friday’s US employment report, which could alter interest-rate expectations just as traders assess whether Wednesday’s return to ETF inflows can continue. A stronger-than-expected labor market could put renewed upward pressure on Treasury yields, testing the conditions that helped Bitcoin and gold recover.
Source link