The Bitcoin gold correlation puzzle

Dirk G. Baur and Lai Hoang

Journal of Behavioral and Experimental Finance, 2021, vol. 32, issue C

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 (search for similar items in EconPapers)
JEL-codes: G11 G12 G14 G15 G41 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:beexfi:v:32:y:2021:i:c:s2214635021001052

DOI: 10.1016/j.jbef.2021.100561

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