An illustration of bitcoin on euro banknotes.
Nicolas Economou | NurPhoto via Getty Images
Goldman Sachs analysts have found a surprisingly similar trend between the world’s most valuable virtual currency and a base metal with a reputation as a barometer for the global economy.
Bitcoin and copper prices have been on a rift for most of this year, reaching record highs amid the ongoing coronavirus pandemic.
“Both institutional investors and high net worth individuals avoid cryptocurrencies because of their inherent transparency problems, while speculative retail investments lead to Bitcoin acting as an overly risky commodity,” said Goldman Sachs analysts in a research report published on Thursday.
“Since the depths of the initial lockdown, Bitcoin has closely followed the rise of copper, a key indicator of global growth,” they added.
Bitcoin prices have skyrocketed. The volatile cryptocurrency, which reminded many market participants of a similar rally in 2017, surged above $ 20,000 for the first time in its history on Wednesday.
According to crypto market data provider Coin Metrics, the company has since topped $ 23,000 before cutting its profits to around $ 22,899 on Friday. In mid-March, during the first wave of the coronavirus pandemic, Bitcoin was trading below $ 5,000.
Bitcoin’s increasing popularity has made it a widespread asset, much like fiat currencies.
The smelter will melt copper on July 23, 2020 in Jinhua, Zhejiang, China.
TPG | Getty Images News | Getty Images
Meanwhile, copper prices topped $ 8,000 a ton on Friday, their highest level since February 2013. Three-month copper prices on the London Metal Exchange have since reduced profits, trading at $ 7,991 during midday trading.
The commodity has increased by more than 28% since the start of the year, which is the fourth positive year in five years.
Copper’s 2020 bull run coincides with a rally among other stocks and risk assets over the past few weeks, with market sentiment improving on positive news about Covid-19 vaccines.
Copper – sometimes also Dr. Called Copper – has the reputation of a barometer for the world economy among market observers. The base metal is viewed this way for its wide range of end uses – both in construction and in consumer products such as automobiles and consumer products.
Earlier this month, Goldman Sachs said it was “very likely” that copper prices would test the 2011 highs of $ 10,170 by the first half of 2022.
“Bitcoin is the reflation trade in retail”
Goldman Sachs analysts not only identified the mirrored rally of bitcoin and copper in recent months, but also believed that bitcoin and gold could “coexist”.
“Gold’s recent underperformance against real rates and the dollar has made some investors concerned that Bitcoin is replacing gold as the inflation hedge of choice,” the US investment bank said.
“While there is some substitution, we do not see the growing popularity of Bitcoin as an existential threat to gold’s status as a currency of last resort.”
The bank added, “From our perspective, Bitcoin is trading in retail reflation while gold is a defensive asset with long-term preservation of real capital.”
– CNBC’s Katrina Bishop contributed to this report.
