Bitcoin’s (BTC) performance relative to gold (XAU) is raising concerns among investors. Recent technical analysis and market observations suggest a potential 35% drop in the BTC/XAU ratio, which could translate to significant downside for Bitcoin’s USD value. This analysis stems from historical patterns and the current macroeconomic environment, particularly the recent $13 trillion wipeout in the US stock market.
Key Takeaways: Bitcoin and Gold’s Interplay
- BTC/XAU Ratio Breakdown: The BTC/XAU ratio has fallen below its 50-period exponential moving average (EMA) on the two-week chart, a bearish signal historically.
- Historical Parallels: Similar breakdowns in the BTC/XAU ratio in 2021 and 2022 preceded substantial declines in Bitcoin’s USD price.
- Technical Target: A move towards the 200-period EMA for the BTC/XAU ratio suggests a potential 35% drop.
- Market Context: Bloomberg Intelligence’s Mike McGlone notes a strong correlation between the BTC/XAU ratio and the US stock market, implying further downside risk.
Technical Analysis: BTC/XAU Ratio and Key Moving Averages
The BTC/XAU ratio is a valuable tool for assessing Bitcoin’s strength relative to gold, a traditional safe-haven asset. A declining BTC/XAU ratio indicates that Bitcoin is underperforming gold, which can signal broader risk aversion in the market.
The recent breach of the 50-period EMA on the two-week chart is a significant development. This moving average acts as a key support level during uptrends, and a break below it suggests a shift in momentum.
Historically, a break below the 50-period EMA has led to a decline towards the 200-period EMA. This is a longer-term moving average that represents the average price over a longer time frame. A test of the 200-period EMA would represent a significant correction in the BTC/XAU ratio.
Expert Opinion: Mike McGlone’s Perspective
Mike McGlone, a senior commodity strategist at Bloomberg Intelligence, has highlighted the correlation between the BTC/XAU ratio and the US stock market cap-to-GDP ratio. He notes that the recent $13 trillion decline in US stock market capitalization is a bearish signal for both equities and Bitcoin.
McGlone suggests that while short-term rallies are possible, the overall trend for both Bitcoin and equities may remain downward.
Historical Context: BTC/XAU and BTC/USD Correlation
The BTC/XAU ratio’s weakness has historically foreshadowed declines in Bitcoin’s USD price. During the 2021-2022 bear market, the BTC/XAU ratio broke below its 50-EMA in late 2021, preceding a sharp decline in Bitcoin’s USD price from over $42,000 to below $17,000.
This pattern has repeated in earlier cycles, such as the 2019-2020 and 2018-2019 periods. Each time, Bitcoin either bottomed out near its 200-week EMA or declined further below it to establish a cycle low.
Implications and Potential Price Target
If the historical correlation between BTC/XAU and BTC/USD holds true, Bitcoin could face an elevated risk of declining towards its 200-week EMA by year’s end. Currently, the 200-week EMA sits near $50,950.
Additional Factors to Consider
- Macroeconomic Conditions: Rising interest rates, inflation, and geopolitical uncertainty could further weigh on Bitcoin’s price.
- Regulatory Developments: Increased regulatory scrutiny could also impact the cryptocurrency market.
- Market Sentiment: Overall market sentiment towards risk assets will play a crucial role in Bitcoin’s price trajectory.
Disclaimer: This analysis is for informational purposes only and should not be considered financial advice. Investing in Bitcoin and other cryptocurrencies involves significant risks, and you could lose money. Always conduct thorough research and consult with a qualified financial advisor before making any investment decisions.
