After a huge rally, gold valuations are starting to fall. Meanwhile, Bitcoin (BTC) appears to be experiencing a slight capital turnover towards Bitcoin (BTC) as evidenced by Tuesday’s price performance that led to a recovery of the $112,000 mark.
In this context, asset management company Bitwise has released a new report outlining an encouraging price outlook for the market-leading cryptocurrency, despite the challenges it has faced over the past few weeks.
How Gold’s Rise Drives Bitcoin Opportunities
The report, authored by Andre Dragosch, Max Shannon, and Aayush Tripathi of Bitwise Europe’s research and analysis division, highlights that crypto prices have underperformed compared to traditional assets, mainly due to bearish market sentiment driven by a renewed decline in U.S. regional bank stocks.
The report highlights the fluctuating performance of Bitcoin relative to gold, which tends to fluctuate in response to changes in risk appetite between assets. A renewed risk-on environment could reaffirm Bitcoin’s performance leadership relative to gold.
A key catalyst for Bitcoin’s recovery over the coming months could come from this capital rotation. Gold has surged this year on expectations for monetary easing and growing concerns about the U.S. fiscal debt.
According to Bitwise, even a modest capital turnover of just 3% to 4% from gold to Bitcoin can have a significant impact on the price of a cryptocurrency, potentially doubling its value, as seen in the graph below.
Interestingly, a 5% shift in investment from gold to Bitcoin could increase the price by more than 126%, reaching $242,391. This is based on a base price of $107,240, which is the price of Bitcoin at the time of Bitwise’s publication.
Why is $118,000 key to BTC’s outlook?
Historical patterns suggest that Bitcoin’s performance leadership may be reasserted during the risk-on phase. This potential change is more than just speculation. The report notes that a similar trend occurred in 2020, with Bitcoin beginning to hit new all-time highs in October, coinciding with the stalling of gold’s rally that began in July.
Analysts believe this performance pattern could be repeated, especially if gold’s rally pauses. They highlight that sustaining gold’s rise typically requires significantly larger capital inflows compared to Bitcoin, which could be a headwind for gold’s continued performance.
Finally, on-chain analysis reveals the existence of a strong liquidity cluster between $93,000 and $118,000, forming an important boundary between bull and bear market conditions. The report suggests that a decisive move above the upper end of this range at $118,000 could result in another price rally.
Featured image from DALL-E, chart from TradingView.com
