The Bitcoin Gold Correlation Puzzle

Journal of Behavioral and Experimental Finance, forthcoming

19 Pages Posted: 23 Jul 2021 Last revised: 22 Jan 2022

See all articles by Dirk G. Baur

Dirk G. Baur

University of Western Australia - Business School; Financial Research Network (FIRN)

Lai T. Hoang

Monash University - Monash Centre for Financial Studies

Date Written: July 1, 2021

Abstract

Bitcoin is regularly referred to as new gold, digital gold or gold 2.0. If Bitcoin is indeed gold-like the correlation of Bitcoin and gold returns should be positive. We estimate the correlation of the two assets across time, across different return frequencies and across quantiles and find a near-zero correlation inconsistent with the claimed similarity. We offer two explanations for this puzzle: either the similarity is only a narrative and not accepted by investors or there are other forces at play that depress the true correlation. Such forces could be a substitution effect, investors sell gold and buy Bitcoin, and a catching up effect, investors buy Bitcoin to catch up with the market weight of gold.

Keywords: Bitcoin, gold, correlation, similarity, narrative, substitution, catching up

JEL Classification: G11, G12, G14, G15, G41

Suggested Citation

Baur, Dirk G. and Hoang, Lai T., The Bitcoin Gold Correlation Puzzle (July 1, 2021). Journal of Behavioral and Experimental Finance, forthcoming, Available at SSRN: https://ssrn.com/abstract=3878214

Dirk G. Baur (Contact Author)

University of Western Australia - Business School ( email )

School of Business
35 Stirling Highway
Crawley, Western Australia 6009
Australia

Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane
Queensland
Australia

HOME PAGE: http://www.firn.org.au

Lai T. Hoang

Monash University - Monash Centre for Financial Studies ( email )

13/f 30 Collin Street
Melbourne, 3000
Australia

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