The Bitcoin Gold Correlation Puzzle
Journal of Behavioral and Experimental Finance, forthcoming
19 Pages Posted: 23 Jul 2021 Last revised: 22 Jan 2022
Date Written: July 1, 2021
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: Suggested Citation